The Silicon Valley Bank (SVB) crisis in the US has raised concerns about the soundness of Korean financial institutions. First of all, the prevailing view in the financial sector is that an extreme case like SVB will not occur because the asset structure of domestic commercial banks is good and the possibility of customer funds leaving is low. However, some point out that savings banks, which have a lot of assets in real estate project financing (PF) loans, cannot be relieved.
According to the Financial Supervisory Service on the 14th, as of the third quarter of last year, the average loan-to-deposit ratio of five domestic commercial banks (Shinhan, KB Kookmin, Woori, Hana, and NH Nonghyup) was 95.1%. The loan-to-deposit ratio is the ratio of credit to deposit, and a high ratio means that deposits received from customers are being stably rolled out through loans.
Domestic banks have such a high ratio of loans and deposits, but their ratio of investment in securities such as stocks and bonds is low at 16.9% of total assets. Even if financial market conditions change rapidly, such as a rise in interest rates or a plunge in the stock market, the risk of significant losses is relatively small. However, contrary to domestic banks, SVB’s loan-to-deposit ratio was only 42.5% as of the end of last year, and its bond investment ratio was 55% of its total assets. An official from a credit rating agency said, “Due to the asset structure of domestic banks, the possibility of large-scale losses in securities is low.”
The possibility of a ‘bank run’, in which customers’ money is withdrawn from their accounts, is also not high. As a result of the FSS inspection of the risk right after the bankruptcy of SVB, the average deposit per person in domestic internet banks was only around 2 million won. However, it is pointed out that the second financial sector, such as savings banks, is relatively weak. Savings banks have a biased profit structure, such as real estate project financing (PF) loans, so there is a high risk that their soundness will deteriorate if the real estate market stagnates in the future. As of the end of last year, the balance of PF loans at the five largest savings banks (SBI, OK, Welcome, Korea Investment, and Pepper) by asset size surged 45% year-on-year to KRW 2.6295 trillion.
The momentum of the financial authorities, which tried to introduce small specialized banks to improve the oligopoly system of commercial banks, is also expected to weaken. Financial authorities reviewed SVB as an overseas reference case for the introduction of specialized banks, but concerns about the soundness of small and medium-sized banks arose when SVB went bankrupt. In this regard, even within the authorities, it has been pointed out that “banks whose loans are concentrated in a specific sector find it difficult to absorb a soundness shock with loans in other sectors.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.