This year, the credit ratings of eight savings banks have been downgraded or their ratings outlook has been lowered. The aftermath of project financing (PF) failures in real estate is shaking the revenue and soundness of the savings banks.
According to the financial sector on the 11th, the three major credit rating agencies in South Korea (NICE Investors Service, Korea Ratings, Korea Credit Ratings) have downgraded the credit ratings or lowered the outlook for eight savings banks this year. The credit rating of Korea Savings Bank has fallen from A- negative to BBB+ stable. Additionally, the credit ratings of Yeagaram Savings Bank and Daol Savings Bank were downgraded from BBB+ negative to BBB stable, JT Savings Bank from BBB negative to BBB- stable, and Baro Savings Bank from BBB stable to BBB- stable.
Hana Savings Bank and Woori Financial Savings Bank have had their credit ratings outlook downgraded from A stable to A negative, respectively.
The repeated downgrades of savings bank credit ratings stem from the real estate PF crisis. As the real estate market has stagnated for years, the possibility of defaults in the savings banks' main business of real estate PF has grown, leading the savings banks to set aside significant amounts of loan loss provisions. Loan loss provisions are processed as expenses, which erode the scale of net profit, while defaults in PF assets directly affect soundness indicators such as arrears.
The Financial Supervisory Service has introduced business sites for project financing public auction platforms to encourage the sale of faltering business sites, but it is expected to take more time for effects to appear. Korea Credit Ratings' Financial and Structured Ratings Division noted, "Considering the accumulation of unsold business sites on the PF auction platform and that existing recovery results are focused on easier tasks, leaving non-capital region and non-residential facility business sites as a burden, it will not be easy to dispose of 'business sites of concern' in the near future."