The savings banks' credit ratings are being downgraded this year, following last year. The deficits due to real estate project financing (PF) failures and economic downturns have negatively impacted credit ratings for two consecutive years. If the credit rating of a savings bank falls below a certain level, it will not be able to manage 'retirement pensions.'
According to the savings bank industry on the 11th, on the 4th, Korea Ratings downgraded the credit rating of Baro Savings Bank from 'BBB (negative)' to 'BBB- (stable).' The reasons for the downgrade included the continued burden of soundness management centered on bridge loans (land acquisition stage PF) and decreased profitability due to increased burdens of provision accumulation.
Previously, Korea Ratings also lowered the credit rating of JT Chin-ae Savings Bank from 'BBB (negative)' to 'BBB- (stable)' based on asset soundness burdens and relatively low capital ratios. Savings banks are seeing a significant downgrade in credit ratings, continuing from last year. Among the 30 savings banks rated by the three major domestic credit rating agencies, 17 had their credit ratings downgraded or their rating outlooks lowered last year.
Although no rating adjustments have yet been made, several savings banks are at risk of credit rating downgrades. Notable examples include Jegaram Savings Bank and Korea Savings Bank, which saw their rating outlook downgraded negatively in June and September of last year. The savings bank industry is making self-correcting efforts, such as actively selling off assets to address the real estate PF failure issue, but improvements in performance are difficult due to the delayed recovery of the real estate market.
Rating adjustments also affect the deposit acquisition of savings banks. In particular, retirement pensions are one of the main sources of deposits for savings banks, along with term deposits. Savings banks sell retirement pension products through banks, but if their credit ratings fall to BB (speculative grade), they will automatically be removed from the list of bank retirement pension products. This makes it impossible to attract new retirement pensions and also prevents the re-deposit of existing retirement pension funds after maturity.
Among the sources of deposits for savings banks, term deposits account for the highest proportion, while retirement pensions only make up a part. However, due to the nature of retirement pensions, they bring in large amounts of funds even with a smaller number of contracts. In the case of defined benefit retirement pensions, for which the company is responsible for pension management, there is no burden of deposit protection insurance premiums, making them appealing to savings banks.
For this reason, after the permission for savings banks to sell retirement pensions was granted in 2018, retirement pensions accounted for 30% of the total deposits in savings banks. However, with the introduction of default options for retirement pensions and intensifying competition, the deposit rates of savings banks are declining due to the easing interest rate trend, leading to a decrease in the attractiveness of retirement pension products offered by savings banks.
A representative from the savings bank industry noted, 'Recently, competition for retirement pensions has become fierce, making it difficult for savings banks to offer new products, and as their credit ratings drop, the outlook is negative. They may proactively give up handling retirement pensions and focus on attracting deposits by slightly raising the interest rates for financial products like term deposits compared to commercial banks or mutual finance institutions.'