Savings banks are grappling with profitability issues as deposits grow rapidly while loan growth remains sluggish. Industry voices are calling for a balance between securing operational income from increased funds and managing procurement costs and soundness.
According to the Bank of Korea's economic statistics system, the balance of deposits at savings banks reached 105.2141 trillion won at the end of July, an increase of 4.8583 trillion won (4.84%) from the previous month (100.3558 trillion won). This marks the highest level this year and the largest increase in two years and seven months since December 2023 (107.1491 trillion won).
The number of deposit and loan customers at savings banks is also on the rise. By the end of the first half of this year, the number of customers at 79 savings banks nationwide totaled 10,169,270.
The challenge lies in the slow expansion of loans compared to the increase in deposits. At the end of July, the balance of loans at savings banks was 96.2528 trillion won, up by only 513 billion won (0.54%) from the previous month (95.7398 trillion won). The growth rate of deposits was nearly nine times that of loans. While deposits increased by 4.8583 trillion won, loans only grew by 513 billion won.
As a result, the gap between the balances of deposits and loans widened from 4.616 trillion won at the end of June to 8.9613 trillion won at the end of July. Although not all of this difference can be viewed as unutilized funds, the inability of loans, a key source of income, to keep pace with deposit growth has become a pressing issue for the industry.
Savings banks heavily rely on deposits for funding. They secure funds through deposits and then generate income from the difference between procurement rates and operational yields through loans. While they can also invest in securities, if the operational income does not keep up with the interest costs of increased deposits, it could strain profitability.
Increasing loans also comes with the burden of managing soundness. Expanding loans without adequately assessing borrowers' repayment abilities can lead to higher delinquency and loss costs, negatively impacting profitability. According to the Financial Supervisory Service, the delinquency rate for savings banks was 6.26% at the end of June, up 0.22 percentage points from the end of last year (6.04%).
Financial authorities have excluded the increase in private mid-interest loans from savings banks and other second-tier financial institutions from household loan total management since August. Industry insiders explain that when deciding on loan expansion, it is essential to consider not only the total limit but also regulations related to credit loans, borrowers' repayment abilities, and delinquency rates.
A savings bank industry official stated, "While deposits have increased, if we cannot utilize them for loans, it means that only the cost-burdening funds are piling up for savings banks. Given the simultaneous demands for household loan regulations and soundness management, it seems that managing procurement costs and profitability will be a significant challenge for the time being rather than expanding the scale."
* This article has been translated by AI.
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