Savings banks face significant first-quarter losses

[Graphics by Song Ji-yoon and Han Yubin]

South Korea‘s savings banks, one of country’s thrift institutions, have suffered an overwhelming net loss of 150 billion won ($194 million) or more in the first quarter of 2024, with a record-breaking delinquency rate that is at a 33-month high. The decline has been attributed to higher borrowing costs, a sluggish economy, and substantial provisions in the wake of the failure of real estate project financing (PF), all of which led to credit rating downgrades for smaller savings banks.

According to the Korea Federation of Savings Bank on Wednesday, as many as 79 Korean savings banks reported a net loss of 154.3 billion won in the period from January to March 2024. Although the amount was reduced by 261.2 billion won from the fourth quarter of 2023, the loss is nearly 2.9 times larger than the 52.7 billion won loss in the year’s first quarter.

The savings bank industry as a whole saw a loss of 556.8 billion won in 2023, its largest deficit in nine years. The significant first-quarter deficit in 2024 is largely due to a decline in interest income as savings banks have reduced both loans and receivables in response to an economic slowdown, rising non-performing loans, and increasing delinquency rates. Receivable balances dropped from 120.7 trillion won at the beginning of 2023 to 103.7 trillion won by the end of March 2024, and loans fell from 115.6 trillion won to 101.3 trillion won over the same period.

The large deficit also stems from provisions for bad debts, particularly real estate PF failures. The industry set aside an additional 132.6 billion won in provisions in the first quarter of 2024 alone, compared to the previous year’s provisions of about 1.3 trillion won.

The sector‘s health has deteriorated as slower economic growth and high interest rates have impaired vulnerable borrowers’ repayment capacity. The delinquency rate for savings banks was 8.8 percent at the end of the first quarter of 2024, up 2.25 percentage points in three months and the highest rate since the end of 2015, while the delinquency rate for corporate loans stood at 11 percent at the end of the first quarter, an increase of 3.52 percentage points from the end of 2023.