A construction site in eastern Seoul in October 2022. [YONHAP]
Korea’s four major financial firms piled up bad debt reserves worth nearly 9 trillion won ($6.77 billion) in total last year in response to the government’s pressure to bolster loss-absorbing capabilities amid persisting concerns over potential defaults of project financing loans.
The four financial holding companies — KB Financial Group, Shinhan Financial Group, Hana Financial Group and Woori Financial Group — held bad debt provisions totaling 8.99 trillion won in 2023, up 71.4 percent on year, according to the companies’ financial reports.
A bad debt provision, or an allowance for doubtful accounts, is a reserve that shows the amount of a firm’s receivables that may ultimately be uncollectible. Therefore, a growing amount of provisions often indicates that the firm is bracing for a bigger potential for defaults. As provisions are recognized as losses on the balance sheet, an increase in the amount of bad debt expenses results in lower reported earnings.
KB Financial Group set aside a provision worth 3.15 trillion won last year, up 70.3 percent from the previous year. The figure was 2.25 trillion won for Shinhan Financial Group, up 70.8 percent, and 1.71 trillion won for Hana Financial Group, up 41 percent. Woori ramped up its provision to 1.88 trillion won, a 112.4-percent jump from a year ago.
In the fourth quarter alone, the four firms stashed away provisions worth over 3 trillion won.
The move comes as the financial authorities continue to urge lenders to brace for potential defaults on project financing loans in the real estate market and enhance capabilities to absorb credit losses.
Financial Supervisory Service Gov. Lee Bok-hyun referred to potential liquidity risks stemming from construction project funding as Korea’s “economic powder keg” during a recent press conference, and warned that the financial watchdog “will take decisive action against companies that have been making wrong decisions such as delaying the recognition of losses, […] up to and including a removal from the market.”
The financial authorities also pledged to push for prompt restructuring in the market this year.
BY SHIN HA-NEE [[email protected]]