Financial soundness of savings banks under scrutiny over rise in delinquency rates

Signboards of local savings banks in Seoul / Yonhap

The Financial Supervisory Service (FSS) has launched on-site inspections regarding the soundness of domestic savings banks, as many of them are showing signs of an increase in delinquency rates that are reaching worrying levels.

According to sources in the financial industry on Thursday, the FSS' inspection began earlier this week, as the regulator started to look into major savings banks, including Welcome Savings Bank. The financial authority plans to expand the inspection to mutual finance companies later this month. The watchdog agency had publicly forewarned the savings banking and mutual finance industries of the upcoming inspection at the end of last month.

According to data by the FSS, the delinquency rates of domestic savings banks reached 6.15 percent, as of the end of September. It is up nearly double from 3.41 percent, the delinquency rate at the end of last year. The delinquency rate at local savings banks has been increasing throughout this year, standing at 5.07 percent at the end of the first quarter and 5.33 percent at the end of the second quarter.

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Specifically, the delinquency rate of individual business loans is rising rapidly, which stood at 5.17 percent in the first quarter, 6.35 percent in the second quarter and 7.49 percent in the third quarter. The figures are higher than those of corporate loans at savings banks, which stood at 5.07 percent, 5.76 percent and 7.09 percent respectively during the same periods.

The state-run watchdog agency will focus on whether large savings banks have been properly conducting debt management while keeping their financial soundness in check.

Seeing the delinquency rates rising, savings banks have also been trying to keep a tighter lid on the amount of loans being given out.

According to the Korea Federation of Savings Banks, the credit size of the savings banks has been reduced to 108.2 trillion won ($81.6 billion), as of the third quarter, which is a 1.2 trillion won decline from the previous quarter. They also additionally stockpiled another 759.8 billion won in their preparation for bad loans, holding a total of 2.69 trillion won as reserves for bad loans.