The delinquency rate on real estate industry loans at Line Savings Bank, formerly Double Savings Bank, has approached 30%, raising warning signals about the lender's asset quality management as it rapidly expands construction and real estate lending even while bad loans in those segments mount.
Line Savings Bank's delinquency rate on real estate industry loans stood at 26.19% as of the end of June, according to financial industry sources on the 1st. That means roughly 15.9 billion won of the bank's 60.7 billion won in real estate industry credit exposure was overdue. The delinquency rate on real estate project financing loans reached 10.39%, while construction industry loans showed a 9.49% delinquency rate.
Notably, financial regulators have identified rising delinquency rates centered on corporate loans as a key asset quality burden for the savings bank sector. The sector's corporate loan delinquency rate stood at 8.38% at the end of June, up 0.38 percentage points from 8.00% at the end of last year. Line Savings Bank's real estate industry delinquency rate is more than triple the sector-wide corporate loan figure.
The growth in real estate related credit has been even more pronounced. Line Savings Bank's construction industry loans surged 78.7% in six months, rising to 64.3 billion won at the end of June from 36 billion won at the end of last year. Project financing loans grew to 71.2 billion won from 65.6 billion won over the same period. Total loans increased 17.2% to 471.5 billion won from 402.3 billion won. That pace is steep relative to the 5.0% corporate loan growth rate for the savings bank sector as a whole over the same period.
Capital adequacy indicators weakened as the bank expanded its balance sheet. Line Savings Bank's risk-weighted assets jumped 31.3% to 515 billion won at the end of June from 392.2 billion won a year earlier. Its capital adequacy ratio under Bank for International Settlements standards fell 2.00 percentage points to 13.36% from 15.36% over the same period. The bank increased lending assets centered on construction and project financing even with its real estate industry delinquency rate already having climbed to the mid-20% range, adding to the burden of managing asset quality.
Line Savings Bank is the financial arm of Line Group, whose main affiliates include builders Line Engineering & Construction and Dongyang Engineering & Construct. With construction and real estate credit expanding quickly and delinquency rates in those sectors running at or near double digits, analysts say the bank needs to manage the risk of further deterioration.
"With real estate loans, asset quality can deteriorate rapidly depending on economic conditions, so it is important to closely manage delinquency rates and capital adequacy," a financial industry official said. "If credit is concentrated in a particular sector, the possibility of expanding bad loans needs to be watched carefully."
