The combined net profit of savings banks in South Korea plunged 19 percent last year, the first decline in six years, as they set aside more reserves for bad debts in case of potential insolvency risk.

According to the preliminary earnings data released by the Financial Supervisory Service on Friday, the 79 savings banks posted a combined net profit of 1.6 trillion won ($1.24 billion) in 2022, down 18.8 percent from a year ago.

The combined net profit of the savings banks had set new records every year between 2017 and 2021 before a decline in 2022.

Their interest income rose 789.3 billion won last year from a year ago amid a rise in the benchmark interest rate. Expenses, however, increased as the savings banks expanded reserves to fill in the allowance for bad debts to cope with potential insolvency risk.

Asset quality indicators such as delinquency rate and non-performing loan ratio at the savings banks also worsened last year.

The total loan delinquency rate stood at 3.4 percent at the end of December last year, up 0.9 percentage point from a year ago. The rate on household loans was 4.7 percent and corporate loans 2.8 percent, up 1 percentage point each from a year ago.

The non-performing loan ratio increased 0.7 percentage point to 4.1 percent during the same period.

“The delinquency rate at savings banks has worsened but it is lower than the pre-pandemic levels,” said an unnamed official from the FSS.

The delinquency rate had reached as high as 5.8 percent in December 2016 and 3.7 percent just before the pandemic broke out in December 2019.

The capital adequacy ratio of savings banks was 13.25 percent, down 0.06 percentage point but still higher than the regulatory requirement.

The Bank for International Settlements (BIS) requires that savings banks with more than 1 trillion in assets maintain at least 8 percent in the ratio and those with assets under 1 trillion won 7 percent.

“We are taking preemptive measures such as by assessing risk factors to prepare for a potential insolvency risk,” the FSS said. “We will continue to encourage savings banks to increase their loss-absorbing capacity to cope with greater internal, external uncertainties.”

The Korea Federation of Savings Banks also said that they have no issues with financial stability and that they are “strengthening risk management with stricter loan screening standards and conservative collateral valuations to respond to the growing uncertainty in the financial market.”

By Pulse

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]