Hard-to-Recover Loans Top 3 Trillion Won... ‘Warning Light’ for Asset Quality at Big Four Financial Groups

For the first time, the four major financial groups’ loans deemed virtually impossible to recover exceeded 3 trillion won. Total nonperforming loans have increased by more than 2 trillion won so far this year, while the provision coverage ratio for bad loans fell at all four groups. Although major financial firms continue to post record-level results, analysts say warning signs have emerged for asset-quality management as delinquency pressures mount, particularly among small businesses and the self-employed.
■ Estimated losses top 3 trillion won for the first time... NPLs also exceed 14 trillion won
According to financial industry sources on the 2nd, estimated losses at the four major financial holding companies—KB, Shinhan Financial Group, Hana and Woori Financial Group—totaled 3.0868 trillion won at the end of the third quarter this year. That was up 391.9 billion won (14.5%) from 2.6949 trillion won in the same period last year. The figure also rose by 95.7 billion won (3.2%) from the previous quarter’s 2.9911 trillion won, reaching a record high.
Estimated loss is the lowest asset-quality category in the five-tier classification that financial companies use for their loans: normal, watch, substandard, doubtful, and estimated loss. These are claims deemed virtually impossible to recover and make up part of nonperforming loans (NPLs), which are classified as substandard or below.
Among the financial holding companies, Woori Financial Group had the largest estimated losses, at 930 billion won, up 177 billion won (23.5%) from 753 billion won in the previous quarter. KB Financial Group’s figure also rose during the same period, from 806.2 billion won to 848.9 billion won, an increase of 42.7 billion won (5.3%). By contrast, Shinhan Financial Group’s estimated losses fell from 900.4 billion won to 790.9 billion won, while those at Hana Financial Group Inc. declined from 531 billion won to 517 billion won.
The total volume of nonperforming loans also expanded. At the end of the third quarter, the four major financial holding companies had approximately 14.32 trillion won in outstanding NPLs, an increase of about 2.39 trillion won from the end of last year.
The increase in nonperforming loans was particularly pronounced at Hana Financial Group Inc. Its outstanding NPLs rose 35.0% from the end of last year to 4.2535 trillion won, the largest amount among the four major financial holding companies. This far outpaced the 3.8% growth in its total loans over the same period. Its NPL ratio also climbed from 0.73% in the third quarter last year to 0.93% this year, an increase of 0.20 percentage points. The ratios at Shinhan Financial Group and Woori Financial Group each rose by 0.02 percentage points, while KB Financial Group’s fell by 0.05 percentage points.
■ NPL coverage ratios fall across the board
As nonperforming loans increased, NPL coverage ratios—which indicate financial holding companies’ capacity to absorb losses—fell across the board. The NPL coverage ratio measures provisions for loan losses against outstanding substandard-and-below loans. A lower ratio means that provisions set aside for nonperforming loans have become smaller in relative terms.
Woori Financial Group’s NPL coverage ratio fell the most, dropping 17.35 percentage points from 130.04% in the third quarter last year to 112.69% in the same quarter this year. Hana Financial Group Inc.’s ratio declined 14.84 percentage points, from 105.03% to 90.19%, making it the only one of the four major financial holding companies to fall below 100%. Hana recorded a ratio of 100% or less in every quarter this year. In the third quarter, Shinhan Financial Group’s ratio of 115.48% and KB Financial Group’s ratio of 129.26% were down 8.61 and 4.14 percentage points, respectively, from a year earlier.
This was because provisions failed to keep pace with the increase in nonperforming loans. For example, Hana Financial Group Inc. increased loan-loss provisions related to its loan receivables by 10.9% from the end of last year through the third quarter this year, while its outstanding NPLs grew by 35.0% over the same period.
Financial industry observers are concerned that deteriorating corporate loans and rising delinquency rates among small businesses and the self-employed could make asset-quality management more challenging going forward. The simple average delinquency rate on loans to small and medium-sized enterprises at the four major banks was 0.57% at the end of the third quarter this year, its highest level in nine years and six months since the first quarter of 2017, when it stood at 0.59%.
A financial industry official said, “Small and medium-sized businesses appear to be struggling with weak domestic demand amid high interest rates.” The official added, “With the market for NPL sales subdued, it is difficult to speed up the resolution of nonperforming loans. Further increases in the base rate are also expected, and it is true that the burden of managing asset quality has grown.”
[email protected] Seo Ji-yoon Reporter