Overdue Loans Weigh on Hana, Kookmin
By Kim Jae-kyoung
Staff Reporter
Despite earnings surprises in the first quarter, the outlook for major Korean banks still looks gloomy than ever, as a growing amount of loans run the high risk of going sour.
The latest data indicates that even tougher challenges are lying ahead, as more small firms and individuals struggle to service their debt payments due to the prolonged economic slump.
According to the Financial Supervisory Service (FSS), the overdue rate on loans extended by the big four banks ― Kookmin, Shinhan, Woori and Hana ― have been on an upward trend, spawning fears over their financial health. In particular, the delinquency rate on loans to small- and medium-sized enterprises (SMEs) has risen quickly.
The overdue rate on SME loans for Hana was the highest, at 2.93 percent at the end of March, up from 1.73 percent at the end of 2008, followed by Woori (2.34 percent), Kookmin (1.63 percent) and Shinhan (1.62 percent).
Shinhan saw the rate on loans to large companies surge to 0.93 percent at the end of March from 0.68 percent at the end of last year, followed by Woori (0.53 percent).
These lenders' household loan outstanding rates also remain high. Kookmin's was the highest, at 0.78 percent at the end of March, compared with 0.61 percent at the end of 2008, followed by Hana (0.67 percent) and Woori (0.6 percent).
Of concern is that the trend of rising delinquent loans will likely persist at least for this year, putting further constraints on the faltering economy.
``Regardless of what banks are doing, the overdue rate may keep rising and the trend will continue. The current level itself is not worrisome, but the problem is that there are many firms and individuals on the verge of bankruptcy,'' a local bank executive told The Korea Times, requesting anonymity.
``I think quite a few small firms will become insolvent in the first half, which will in turn affect households in the latter half. Many like to believe that we have seen the bottom in the last quarter but the worst has yet to come. I think things won't get better unless employment conditions turn around sometime soon,'' he added.
According to the National Statistical Office (NSO), job losses hit a 10-year high in March, with local employers eliminating 195,000 positions from their payrolls compared with a year earlier, the highest since March 1999. The unemployment rate stood at 4 percent last month, up from the previous month's 3.9 percent.
The bleak data regarding overdue loans came as local banks have shifted to surpluses in the first quarter from the previous quarter's red ink. But analysts expect that banks won't see sharp improvement in profits in the coming quarters as they will have to set aside loan loss reserves.
``With uncertainty surrounding the timing of the downturn's end, there are few signs that local lenders have turned around,'' Daewoo Securities analyst Ku Yong-uk told The Korea Times.
``Banks are still saddled with the burden of overdue loans and loan-loss reserves,'' he added. ``Unless risks associated with overdue loans are cleared away, it's unlikely that banks will enjoy large profits this year.''
Prudential Securities analysts Sung Byung-soo echoed the view, saying, ``It's too early to conclude that the economy has bottomed out. Given that the economy is likely to follow a U-shaped recession, it's probable that overdue loans will keep rising down the road.''
``Banks' performances will depend on how much loan-loss reserves they set aside in the coming quarters,'' he added.
The Korean economy is highly likely to undergo a U-shaped recession, meaning that the economy will be at the bottom for a considerable period before it shows any meaningful recovery.
Korea Institute of Finance (KIF) economist Shin Yong-sang recently said that due to its export orientation, the Korean economy will not be able to rebound until other major economies get out of the recession.
``Given the global slump and sluggish exports, (Korea's) recession will likely continue for a while,'' he said.