South Korean savings banks are facing a double whammy of falling loan rates and reduced loan volumes, triggering their representative organization to develop supportive measures to boost poor profitability.

According to sources from the savings banks industry on Sunday, Sunshine Loans offered by savings banks were viable at a procurement interest rate of 3.62 percent in May, down 0.52 percentage points from a month earlier.

The upper end of the annual borrowing rate for the self-employed loans came down to the 9 percent range.

The rates for credit loans have also been on a decline. The average annual rates on credit loans offered by 31 local savings banks were 13.48~19.74 percent in April, slightly down from the previous month’s 13.61~19.73 percent.

A decline in the loan rates usually leads to an increase in loan volumes.

However, the outstanding balance of loans reported by the savings banks fell by 1 trillion won ($763.3 million) in April.

“A decline in the number of low-credit borrowers with higher loan limits has depleted demand for loans,” according to an unnamed official from a savings bank.

“Weaker soundness makes savings banks focus on the management of existing loans instead of providing the policy loans with higher rates,” the official added.

Savings banks have logged 52.3 billion won in operating loss for the first quarter. Their earnings are expected to further weaken in the second quarter.

In response to the grim outlook, the Korea Federation of Savings Banks (KFSB) introduced a system in May that enables savings banks to profit from short-term investments.

The system, called “SB Infomarket,” provides information on products from commercial lenders and market analysis to help savings banks earn profit.

The primary source of profit for savings banks involves deposits but the banks also make profit by depositing short-term funds into the KFSB or making investments using the funds.

However, the liquidity ratio for savings banks has been high to stand at 241 percent.

“The system is designed to give information on markets and investments to small-to-mid-sized savings banks that are struggling to manage their funds,” the federation said.

The information to be provided by the KFSB will mostly be about safe securities, such as capital preservation securities that protect the monetary value of assets or fixed-income securities.

By Myung ji-ye and Han Yubin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]