The savings bank industry, which is in the process of organizing its non-performing assets related to real estate project financing (PF), is expressing difficulties regarding the increase in the deposit protection limit and the introduction of a responsibility structure planned for this year. In particular, there was a view that raising the deposit protection limit from 50 million won to 100 million won would lead to a 'MoneyMove' to savings banks; however, the reality is that the savings bank sector is burdened more by insurance premiums than expecting an increase in deposit balances.
According to the financial industry on the 22nd, financial authorities summoned representatives from major savings banks last week, asking them to expedite the resolution of the non-performing PF assets in the savings bank sector. They strongly requested that this be implemented within the first half of this year, warning that failure to do so could lead to on-site inspections or sanctions against executives and employees. If the authorities enforce sanctions, there may be a significant increase in savings banks receiving timely corrective measures.
The savings bank industry is hastening the resolution of non-performing assets through various means such as establishing PF resolution funds and specialized subsidiaries for the sale of non-performing loans (NPL), but the situation remains sluggish. According to financial authorities, out of the 12 trillion won in PF exposure subject to resolution (excluding 500 billion won that is subject to amortization), 4 trillion won was resolved last year, falling slightly short of the 4.3 trillion won target set for last year. Although several business sites are in negotiations for sales this year, significant results are still hard to find.
While savings banks are preoccupied with PF resolutions, external burdens are increasing as the financial system changes. First, the financial authorities plan to finalize the timeline for raising the deposit protection limit to 100 million won within the first half of this year. There had previously been speculation that if the protection limit is raised to 100 million won, savings banks, which generally offer higher interest rates compared to commercial banks, would benefit from this 'MoneyMove.' According to a research report by the Financial Services Commission, deposits in savings banks could increase by 16 to 25% if the deposit protection limit is raised to 100 million won.
However, savings banks now find it challenging to expect substantial growth in deposits due to the minimal difference in deposit interest rates compared to banks, and they view the burden of deposit insurance premiums as more significant. Recently, the average interest rate for one-year fixed deposits at savings banks was 2.96%, which is not significantly different from the one-year fixed deposit rate of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), which ranges from 2.15% to 2.75%. Moreover, the deposit insurance premium rate for savings banks is 0.4%, considerably higher than that of mutual finance (0.2%) or commercial banks (0.08%).
Additionally, the submission deadline for the responsibility structure of savings banks is approaching. By January, banks and financial holding companies had completed submitting their responsibility structures to financial authorities, while savings banks with assets of over 700 billion won must do so by July next year, and those with assets below that threshold must comply by July 2027. However, the preparation of the responsibility structure itself takes considerable time, and many small and medium-sized companies need to completely reorganize their internal management systems from scratch.
The debate over the legal maximum interest rate, which arose ahead of the recent presidential election, is also adding to the burdens. According to political sources, the financial subcommittee of 'Growth and Integration,' a think tank of former Democratic Party leader Lee Jae-myung, has examined the agenda of lowering the legal maximum interest rate to the 10% range. Previously, as the current legal maximum interest rate (20%) was adjusted downward, legal money lending companies faced bankruptcy one after another; if it is lowered to the 10% range, savings banks, which primarily handle loans for low-credit individuals, may find it impossible to bear the high delinquency risk.
A representative from the savings bank industry noted, "The savings bank sector is currently focused on reducing the non-performing PF assets as required by the authorities, making it difficult to manage the expansion of deposits or the responsibility structure. In particular, if the legal maximum limit is lowered from where it currently stands, savings banks, which handle loans to low-credit individuals, will have virtually no means of coping."