South Korean savings banks saw their net profit fall by nearly 80 percent in the first quarter due to rising interest costs and expanded reserves for bad debt.

According to each disclosure filed by the savings banks with the Korea Federation of Savings Banks on Monday, the combined net profit of the country’s top five savings banks stood at 37.8 billion won ($28.9 million) in the first quarter, down 78 percent from the same period a year ago.

The five lenders are SBI Savings Bank, OK Savings Bank, Welcome Savings Bank, Pepper Savings Bank, and Korea Investment Savings Bank.

Korea Investment Savings Bank saw its net profit fall by 20.3 percent to 13.7 billion won and Welcome Savings Bank 70 percent to 8.1 billion won during the cited period.

Pepper Savings Bank swung to a net loss of 25.3 billion won in the January-March period.

OK Savings Bank was the only lender that saw its net profit rise to 37.6 billion won, up 40.8 percent from 26.7 billion won in the previous year.

Last year, local savings banks scrambled to raise their annual deposit rates to 5~6 percent to attract more consumers and prevent an outflow of customers amid a hike in deposit rates at commercial banks.

The rise forced them to incur rising interest expenses in the first quarter.

Interest expenses incurred on the five banks in the first quarter amounted to 682.2 billion won, up 106.85 percent from a year ago.

Bad debt expenses among the savings banks also jumped 12.2 percent to 2.5 trillion won during the same period, attributable to rising reserves for losses caused by the bad loans.

The Financial Services Commission (FSC) has already raised the conversion ratio for temporary financing securities, such as personal lines of credit, to 30 percent this year from the previous 20 percent.

The ratio serves as the benchmark for bad-loan reserves, as it is measured by the amount of unused balance to be set aside as reserves.

Delinquency rates for savings banks also climbed as vulnerable yet liable borrowers have become insolvent amid rising interest expenses, high borrowing costs, and soaring inflation.

The rate among the top five rose 2.4 percentage points on year to an average of 4.77 percent in the first quarter.

The figure for OK Savings Bank stood at 6.64 percent, up 3.57 percentage points. SBI Savings Bank posted a default rate of 3.36 percent.

The Korea Federation of Savings Banks said that the combined net loss at 79 local savings banks came to 52.3 billion won, resulting in the first red in 9 years.

By Pulse

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