Savings banks post highest first-half profit in 4 years

South Korea's savings banks posted net profit exceeding 760 billion won ($549 million) in the first half of this year, marking their best first-half earnings in four years. Growth in mid-rate private lending and corporate loans, combined with higher securities-related gains and lower credit costs, drove the improvement.

The Financial Supervisory Service said the combined net profit for the period at 79 domestic savings banks reached 765.8 billion won, up 508.8 billion won — or 198 percent — from 257 billion won in the same period last year. It is the largest figure on a half-year basis since the first half of 2022.

Securities-related gains rose 401.2 billion won from a year earlier, while credit costs fell 260.8 billion won, partly due to a reduction in non-performing loans. Interest income also edged up 0.9 percent to 2.73 trillion won.

Loan assets expanded, led by corporate lending. Total loans outstanding at savings banks stood at 95.8 trillion won at the end of June, up 2.3 trillion won from the end of last year. Corporate loans grew 5 percent, from 46.2 trillion won to 48.5 trillion won, while household loans held roughly steady at 39.6 trillion won.

The supply of private mid-rate loans also expanded. According to the Korea Federation of Savings Banks, the outstanding balance of private mid-rate loans reached 18.2 trillion won as of the end of June — up 600 billion won from the end of last year — boosted in part by the launch of a mid-rate lifestyle stabilization loan product in June.

Total assets at savings banks reached 120.6 trillion won at the end of June, up 2.6 trillion won, or 2.2 percent, from the end of last year. Deposits rose to 100.4 trillion won and equity capital increased to 15.4 trillion won. The BIS capital adequacy ratio stood at 15.73 percent, down 0.12 percentage points from the end of last year.

Even as earnings improved, the overall delinquency rate crept higher, driven by corporate loans. The total delinquency rate at savings banks rose 0.22 percentage points, from 6.04 percent at the end of last year to 6.26 percent at the end of June. The household loan delinquency rate edged down from 4.67 percent to 4.60 percent, while the corporate loan delinquency rate climbed from 8.00 percent to 8.38 percent.

The substandard-and-below loan ratio fell 0.27 percentage points over the same period, however, from 8.43 percent to 8.16 percent. The current delinquency rate also remains below the 7.53 percent recorded at the end of June last year. The FSS assessed the sector's loss-absorption capacity, including capital ratios, as adequate.

Mutual finance cooperatives — including credit unions, agricultural cooperatives, fisheries cooperatives and forestry cooperatives — posted combined net profit of 714.1 billion won in the first half, up 296.5 billion won, or 71 percent, from a year earlier. The gain was driven by a 13.8 percent increase in net profit from credit operations, supported by growth in interest income.

The delinquency rate at mutual finance cooperatives rose from 4.62 percent at the end of last year to 5.39 percent at the end of June. The corporate loan delinquency rate climbed 1.20 percentage points, from 6.83 percent to 8.03 percent, while the household loan delinquency rate also increased, from 1.93 percent to 2.21 percent.

The FSS plans to encourage non-bank lenders to clear bad assets through court-ordered and voluntary sales in the second half of the year, while tightening financial soundness management through increased loan-loss provisioning and capital reinforcement.

Meanwhile, the delinquency rate on small and medium-sized enterprise loans across the non-bank sector — including savings banks, insurers and mutual finance cooperatives — stood at 7.19 percent as of the end of the first quarter of this year, more than four times the 1.65 percent recorded in 2021. Non-performing corporate loans at the five major banks also rose 36.4 percent from the end of last year to 4.65 trillion won at the end of June.