The financial authorities are pressuring savings banks to address their non-performing loans, but the industry restructuring anticipated within the year is expected to be slightly delayed due to the aftermath of the martial law situation. While it is expected that a large-scale non-performing loan crisis similar to the past will not occur, concerns are also emerging that restructuring may become sluggish.
According to the financial sector on the 16th, the Financial Supervisory Service (FSS) has received plans to reduce the non-performing loans (NPL) from the savings bank industry. The FSS plans to encourage the savings banks to manage their non-performing loans by checking the progress of the plans.
NPL refers to non-performing loans that have been in arrears for more than three months and are impossible to recover. As savings banks have been reassessing the viability of real estate project financing establishments, the NPL ratio has significantly increased. As of the third quarter, the NPL ratio of 79 savings banks is 11.16%. This means 11.6% of the total credit is non-performing loans that cannot be recovered. There are also four institutions where the NPL ratio exceeds 20%. In the case of Solbrain Savings Bank, the NPL ratio is 36.9%.
The financial authorities are also conducting onsite inspections to pressure savings banks that are slow in addressing their non-performing project financing establishments. Currently, savings banks are being passive in addressing non-performing establishments as they expect a recovery in the real estate market following two cuts in the base interest rate.
However, the timely corrective actions for two non-performing savings banks may be postponed until next year. Timely corrective actions refer to measures taken by the financial authorities to order management improvements in financially vulnerable institutions. Management improvement is divided into three stages: recommendations, requirements, and orders. Ultimately, failing to meet the financial authorities' requirements can lead to the return of financial business licenses.
Initially, the industry anticipated that this timely corrective action would signal the beginning of a rigorous selection process among savings banks. However, the financial authorities have decided not to proceed with timely corrective actions for savings banks for the time being. This decision is interpreted as a concern that applying timely corrective actions could confuse financial consumers amid the ongoing market chaos during the martial law. It has been reported that the agenda for timely corrective actions for savings banks was not listed in the regular meeting of the Financial Services Commission held on the 11th. If the agenda is not addressed in the upcoming regular meeting on the 24th, the timely corrective actions will carry over into next year.
A financial sector official noted, “It is appropriate to postpone actions by the authorities that could send negative signals to the financial market,” while adding that “restructuring for some severely troubled savings banks should proceed without delay, as it will actually help stabilize the market.”