In contrast to the major banks that set a record for maximum performance in the first half of this year, regional banks saw declines in both revenue and soundness.
According to the financial sector on the 7th, the total net profit of Busan, Gyeongnam, Gwangju, and Jeonbuk banks, as well as iM Bank (formerly Daegu Bank), was 931.6 billion won in the first half of this year, a decrease of 0.9% compared to the previous year. The net profit of the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—was 9.2847 trillion won, which is an increase of 12.5% during the same period.
By bank, Gyeongnam Bank's net profit in the first half of the year fell sharply by 22.4%, from 204.3 billion won last year to 158.5 billion won this year, marking the largest decline. Gwangju Bank also saw a decrease in net profit from 161.1 billion won to 148.4 billion won, a decline of 7.9%. Jeonbuk Bank and Busan Bank experienced increases in net profit of 3.5% and 0.1%, respectively. Only iM Bank recorded a 22% increase in net profit.
Due to the trend of interest rate cuts, regional economic downturn, and the effects of corporation failures, interest income has decreased, leading to lower revenue. The biggest issue is that the arrears rate is sharply rising. When the arrears rate increases, banks must increase the loan loss reserves they set aside for potential defaults, resulting in a decrease in net profit.
The average arrears rate of regional banks has exceeded 1%. An arrears rate above 1% indicates a serious risk to financial soundness. In the banking sector, an arrears rate above 0.8% is recognized as a 'warning level,' while over 1% is seen as a 'danger level.' The average arrears rate for major banks is around 0.3%.
Among the five major regional banks, Jeonbuk Bank has the highest arrears rate. As of the end of June, the arrears rate stood at 1.58%, a sharp increase of 0.49 percentage points compared to the end of last year (1.09%). During the same period, Gyeongnam Bank's arrears rate rose more than double from 0.45% to 1.02%. This was followed by Busan Bank (0.94%), iM Bank (0.93%), and Gwangju Bank (0.76%).
As the arrears rate rises, the amount of substandard loans is also accumulating rapidly. The higher the amount of substandard loans, the greater the likelihood that banks will suffer losses on the money they lent. The outstanding amount of substandard loans of the five major regional banks totaled 1.944 trillion won as of the end of June, a 33.9% increase compared to the end of last year (1.4523 trillion won).
A representative from a regional bank noted, 'The fact that the arrears rate has exceeded 1% signals that the local economy has gone beyond a recession and is in crisis.' They added, 'The failures in construction and rental industries are expanding to manufacturing and self-employed sectors, indicating that the situation may become even more serious in the second half of this year.'
In the past three years, the number of closures and bankruptcies of regional corporations has increased. According to the Court Statistics Monthly, the number of corporate bankruptcy cases filed in the district courts during the first half of the year (January to June) rose from 248 cases in 2022 to 401 cases in 2023, 540 cases last year, and 596 cases this year, more than doubling in three years.