Liquidity ratio falls from 165.48% to 129.18%, still above regulatory floor

Lending up just 0.3% year-on-year as mid-rate loan exemption draws attention

A savings bank branch in Seoul. [Yonhap]
A savings bank branch in Seoul. [Yonhap]

The combined net profit of South Korea's 20 largest savings banks more than tripled in the first half of this year compared with a year earlier, while liquidity ratios that had stayed elevated since the 2022 Legoland crisis fell by more than 36 percentage points, signaling a return to normal.

The top 20 savings banks by assets posted a combined net profit for the period of 574.6 billion won ($423 million) in the first half of this year, up 394 billion won — a 218 percent increase — from 180.6 billion won in the same period last year, according to industry data released Monday.

The earnings recovery was concentrated among a handful of large players. OK Savings Bank led the group with a net profit of 229.1 billion won, followed by Korea Investment Savings Bank at 153 billion won. Welcome Savings Bank posted 87.3 billion won, SBI Savings Bank 37.6 billion won, and DB Savings Bank 13.8 billion won.

OK Savings Bank and Korea Investment Savings Bank together earned 382.1 billion won, accounting for 66.4 percent of the top 20 firms' total net profit. The gap between institutions was stark: the second- and third-ranked banks by profit both outearned SBI Savings Bank, which holds the largest asset base in the sector.

With traditional interest income growth constrained by lending regulations, analysts say some of the larger institutions boosted earnings by diversifying into securities management and other non-lending revenue streams.

Financial structures also shifted. The average liquidity ratio for the top 20 firms at the end of the second quarter stood at 129.18 percent, down 36.30 percentage points from 165.48 percent a year earlier.

The liquidity ratio measures how much in won-denominated liquid assets a savings bank holds relative to liabilities due within three months. Savings banks are required to maintain the ratio above 100 percent; the top 20 averaged 129.18 percent, comfortably above the regulatory floor.

Industry officials attribute the decline to a normalization following the 2022 Legoland crisis, when a surge of deposits prompted banks to lock up short-term funds in reserve accounts, pushing liquidity ratios sharply higher. As demand for those precautionary buffers has eased, ratios have settled back toward levels each institution considers appropriate.

Korea Federation of Savings Banks. [Korea Federation of Savings Banks]
Korea Federation of Savings Banks. [Korea Federation of Savings Banks]

Among the top five banks by assets, Korea Investment Savings Bank had the highest liquidity ratio at 140.83 percent, followed by OK Savings Bank at 124.63 percent, Welcome Savings Bank at 119.0 percent, SBI Savings Bank at 111.91 percent, and Acuon Savings Bank at 104.14 percent. Korea Investment Savings Bank's ratio fell roughly 100 percentage points from 240.75 percent at the end of June last year.

Despite the profit recovery, lending activity at savings banks has yet to show a meaningful rebound. The top 20 firms' outstanding loan balance at the end of June stood at 68.21 trillion won, up just 228.5 billion won from 67.98 trillion won a year earlier — a gain of roughly 0.3 percent.

Savings banks face a difficult environment for expanding credit: household lending caps, debt service ratio regulations, and pressure to keep delinquency and other asset-quality indicators in check have all combined to limit their appetite for new loans.

Financial regulators have been trying to open more room for lending, particularly through mid-rate loans. Starting last month, incremental growth in private-sector mid-rate loans at savings banks was fully excluded from household lending caps, up from the previous exemption of 80 percent of such loans. The number of savings banks authorized to offer mid-rate lifestyle safety loans — a product introduced in June — also expanded from six to nine.

Whether the deregulation will translate directly into loan growth, however, remains to be seen. Many mid- to low-credit borrowers who turn to savings banks have already reached their borrowing limits, and aggressively expanding supply risks pushing delinquency rates and non-performing loan ratios back up.

Meanwhile, the savings bank sector as a whole posted a net profit for the period of 765.8 billion won in the first half, with the top 20 firms accounting for about 75 percent of that total. The delinquency rate and substandard-and-below loan ratio at the end of the second quarter stood at 6.3 percent and 8.2 percent, respectively, each down 0.4 percentage points from the previous quarter.


rim@heraldcorp.com