The loan volume at savings banks, whose soundness had deteriorated sharply recently, rebounded for the first time this year. Savings banks' deposit balances are also on the rise for the fourth straight month. As the industry's soundness gradually recovers with the cleanup of distressed real estate project financing (PF) loans, savings banks appear to be expanding lending again to secure loan interest revenue.
According to the Bank of Korea on the 3rd, the loan balance (end-of-month) at savings banks in Aug. was 94.266 trillion won, up 0.4% from the previous month. The loan volume at savings banks had fallen continuously from 96.7312 trillion won in Jan. to 93.8627 trillion won in Jul., but turned upward in Aug. for the first time this year.
Deposit volume is also continuing to rise. The deposit balance (end-of-month) at savings banks was 102.3866 trillion won, up 1.4% from the previous month. Savings bank deposits fell for seven straight months from Nov. last year, and in Mar. the 100 trillion won level was broken. Then, after rebounding in May, they have continued to increase for four months.
The volume of nonperforming loans at savings banks is also shrinking sharply. According to the Financial Supervisory Service, the substandard-or-below loan balance at 79 savings banks in the first half of this year was 9.0108 trillion won, down 18.8% from a year earlier. The volume of nonperforming loans at savings banks was around 6.133 trillion won in the first half of 2023, but surged to 11.5627 trillion won in the first half of last year, nearly doubling.
Savings banks have seen their soundness rapidly worsen since 2022 due to distressed real estate PF. Real estate PF is an investment method of borrowing development funds with presale revenue as collateral. Korea's real estate PF market grew rapidly between 2020 and 2022 due to factors such as increased supply during the COVID-19 recovery, but profitability deteriorated from the second half of 2022. As developers at the time failed to properly repay principal and interest on loans, savings banks' profitability also fell sharply. In the first quarter of this year, the delinquency rate at 79 savings banks was 9%, and breaking above 9% was the first time in 10 years since 2015.
However, as distressed loans have been actively cleaned up this year, the soundness of savings banks is gradually improving. The Korea Federation of Savings Banks cleared 540 billion won in distressed real estate PF loans last year. This year, 1.4 trillion won in PF distressed loans were cleared in the first half alone. Through this, the delinquency rate at 79 savings banks in the first half of this year was 7.53%, down 0.99 percentage point from last year. Accordingly, savings banks that had reduced lending to prevent the spread of distress are moving to increase loans again to recover revenue.
An official in the savings bank industry said, "As soundness indicators improve, savings banks are showing a trend of trying to recover revenue," adding, "Revenue generation driven by factors such as easing provision burdens and other expense reductions is likely to continue for a while."