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Local lenders face polarization in delinquency rates

Gettyimagesbank
Gettyimagesbank

By Anna J. Park

As the economic shock from the COVID-19 pandemic is prolonged, signs of polarization are being spotted everywhere in the economy, including local lenders' recent performances.

According to the financial industry, while the average delinquency rate at the nation's 79 savings banks stood at around 5 percent as of the end of September, last year, seven of them recorded deteriorated default rates ranging from 10 percent to 25 percent.

However, the top five players in the sector logged a better performance during the third and fourth quarters of 2020, with their delinquency rates improving compared to the same period last year.

SBI Savings Bank, the top performer in the sector, saw a 1.84 percent default rate during the second half of last year, down 0.94 percentage points year-on-year.

Other major players in the sector, including OK, Welcome and Pepper savings banks, also recorded a fall in their delinquency rates during the same period.

Major local banks also saw a fall in the average delinquency rates of 0.3 percent as the end of last September, the lowest since 2007.

Market watchers said that these seemingly-improved numbers at major lenders are largely due to the financial authorities' policies to extend debt the maturity of loans for debtors across the country. They also warn of the risks from bad loans that could emerge nearing the end of the first half of the year.

"Various layers of financial support, such as policies delaying debt maturity for small vendors, might temporarily cover up a potential risk from bad loans," a market insider familiar with the topic explained.

Market experts stress savings banks, particularly small ones, must take preemptive measures to prevent themselves from dormant risks of further delinquency, as around 90 percent of savings banks' loans are lent to small- and medium-sized business owners.

They called for increasing their allowance for uncollectible accounts in contingency cases as well as close monitoring to minimize threats from bad loans and debts. As witnessed from the contrast in the default rates according to the size of the banks, minor lenders could be the first to face eroded profitability as well as degraded soundness of their finances.

As of the end of the third quarter last year, household and corporate debt amounts to 211.2 percent of the nation's nominal GDP. Household debt increased by 7 percent year-on-year, while corporate debt jumped 15.5 percent.


Gettyimagesbank
Gettyimagesbank

By Anna J. Park

As the economic shock from the COVID-19 pandemic is prolonged, signs of polarization are being spotted everywhere in the economy, including local lenders' recent performances.

According to the financial industry, while the average delinquency rate at the nation's 79 savings banks stood at around 5 percent as of the end of September, last year, seven of them recorded deteriorated default rates ranging from 10 percent to 25 percent.

However, the top five players in the sector logged a better performance during the third and fourth quarters of 2020, with their delinquency rates improving compared to the same period last year.

SBI Savings Bank, the top performer in the sector, saw a 1.84 percent default rate during the second half of last year, down 0.94 percentage points year-on-year.

Other major players in the sector, including OK, Welcome and Pepper savings banks, also recorded a fall in their delinquency rates during the same period.

Major local banks also saw a fall in the average delinquency rates of 0.3 percent as the end of last September, the lowest since 2007.

Market watchers said that these seemingly-improved numbers at major lenders are largely due to the financial authorities' policies to extend debt the maturity of loans for debtors across the country. They also warn of the risks from bad loans that could emerge nearing the end of the first half of the year.

"Various layers of financial support, such as policies delaying debt maturity for small vendors, might temporarily cover up a potential risk from bad loans," a market insider familiar with the topic explained.

Market experts stress savings banks, particularly small ones, must take preemptive measures to prevent themselves from dormant risks of further delinquency, as around 90 percent of savings banks' loans are lent to small- and medium-sized business owners.

They called for increasing their allowance for uncollectible accounts in contingency cases as well as close monitoring to minimize threats from bad loans and debts. As witnessed from the contrast in the default rates according to the size of the banks, minor lenders could be the first to face eroded profitability as well as degraded soundness of their finances.

As of the end of the third quarter last year, household and corporate debt amounts to 211.2 percent of the nation's nominal GDP. Household debt increased by 7 percent year-on-year, while corporate debt jumped 15.5 percent.


Park Ji-won annajpark@koreatimes.co.kr


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