[Alpha Biz= Paul Lee] On April 25, NICE Investors Service announced credit rating downgrades for three savings banks under the Taekwang Financial Group: Korea Savings Bank, Yegaram Savings Bank, and Daol Savings Bank.
Korea Savings Bank:
The credit rating was downgraded from 'A-' to 'BBB+', with the outlook changing from 'Negative' to 'Stable'.
Reason for downgrade: The increase in funding costs due to higher deposit rates since 2023, coupled with higher provisions for bad debts related to real estate-backed loans, significantly reduced net interest income. As a result, the bank experienced a severe decline in performance, with a projected net loss of 40 billion KRW in 2023 and 390 billion KRW in 2024.
Yegaram Savings Bank:
The credit rating was downgraded from 'BBB+' to 'BBB', with the outlook changing from 'Negative' to 'Stable'.
Reason for downgrade: Similar to Korea Savings Bank, Yegaram also faced a decrease in net interest income due to higher borrowing costs. Additionally, the deterioration in the quality of collateral loans to individual entrepreneurs and small businesses led to increased provisions for bad debts. The bank's financial situation deteriorated, with a net profit of 3 billion KRW in 2023, but a projected net loss of 281 billion KRW in 2024.
Daol Savings Bank:
The credit rating was downgraded from 'BBB+' to 'BBB', with the outlook changing from 'Negative' to 'Stable'.
Reason for downgrade: The downgrade was attributed to the persistent burden of bad debts, resulting in weakened profitability, along with a decline in asset quality and capital adequacy compared to the past. Daol Savings Bank continues to face challenges, particularly due to its exposure to real estate project financing, which exceeds the industry average, leading to potential risks of further bad debt provisions and impact on financial stability.
Outlook and Monitoring: NICE Investors Service highlighted that while the banks are attempting to address non-performing loans, there remains substantial exposure to real estate project financing, which could continue to pressure their financial stability. The agency will continue to monitor the situation closely for any further deterioration in profitability and financial health.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
