In the first quarter of this year, 18 out of 23 savings banks located in Seoul showed non-performing loans (NPLs) ratios exceeding the recommended level. Notably, the number of savings banks in the Seoul area with NPL ratios exceeding double digits increased from 8 to 12 during the same period. The situation of savings banks has worsened since the real estate project financing (PF) defaults began in the second half of 2022.
According to the Korea Federation of Savings Banks on the 14th, the NPL ratio of 18 out of 23 savings banks located in Seoul exceeded the recommended level of 8% in the first quarter of this year. This means 78% of Seoul savings banks are non-performing. This is an increase of 1 from the same period last year (17 banks). While JT Financial Savings Bank improved from 8.54% to 6.68% during the same period, Daol and Yuanta Savings Bank's ratios entered the 8% range from 6-7%.
Savings bank loan claims are classified as normal, watchlist, delinquent, doubtful, and estimated loss, among which the total amount of loans below the 'delinquent' category with a delinquency period of over 3 months is referred to as non-performing loans. The ratio of non-performing loans to total loans is termed the NPL ratio; the higher this ratio, the more non-performing assets exist. The financial authorities recommend a level below 8%.
In particular, the NPL ratio of OSB Savings Bank rose by 3.42 percentage points to 16.5% in the first quarter of this year compared to 12.88% in the same period last year. The capital adequacy ratio of the Bank for International Settlements (BIS) worsened from 12.09% to 11.75% during the same period, placing it among those eligible for restructuring mergers and acquisitions (M&A). Earlier, the financial authorities decided in March that if savings banks with assets of over 1 trillion won recorded a BIS ratio below 12%, they would be included in the 'grey zone', allowing for M&A.
The non-performing loans of OSB Savings Bank decreased from 329.9 billion won in the first quarter of last year to 288.8 billion won in the first quarter of this year; however, the total loans during the same period shrank from 2.1713 trillion won to 1.7511 trillion won. While it managed to write off over 40 billion won in non-performing loans, the deterioration of operational strength due to a reduction in new loans led to a rise in the NPL ratio.
Moreover, OSB Savings Bank's loan loss provisions decreased to 135.4 billion won in the first quarter of this year compared to 149.9 billion won in the same period last year. This contrasts with the increase in the NPL ratio that would typically require higher loan loss provisions. Loan loss provisions are reserves set aside to absorb losses arising from uncollectible loans.
Accordingly, the ratio at which OSB Savings Bank can absorb non-performing loans with loan loss provisions (NPL coverage) is 46.9%, significantly below the industry average of 90-100%. This means that if all non-performing loans incur losses, it would not offset even half. The remaining non-performing loans that cannot be resolved through loan loss provisions must be addressed by OSB Savings Bank's assets. The increase in loan loss expenses and the corresponding decrease in equity lead to a further decline in the BIS capital adequacy ratio.
This issue is not only related to OSB Savings Bank. In the first quarter of this year, the number of savings banks located in Seoul with NPL ratios exceeding double digits increased by 4 from 8 to 12 compared to the same period last year. KB Savings Bank saw its NPL ratio decrease from 12.2% to 9.5% during the same period; however, Kiwoom YES, Welcome, Hana, NH, and Minguok Savings Bank increased from single to double digits.
Among these, Hana Savings Bank has non-performing loans of 295.7 billion won, while its loan loss provisions stand at 171.4 billion won, resulting in an NPL coverage of 57.9%. Furthermore, Kiwoom YES Savings Bank has an NPL coverage of 54.2%, NH Savings Bank 67.2%, and Minguok Savings Bank 60.3%.