Financial Industry Writes Off 61 Trillion Won in Loans

Financial institutions, including banks, credit card companies and insurance carriers, lost 61 trillion won to bad loan over the past 4.5 years.

Experts believe that the institutions must have conducted their loan screening procedures in a sloppy way to secure more sources of income.

The figures are quoted in a report submitted yesterday by the Financial Supervisory Service to Grand National Party Rep. Lee Gye-gyeong. The report finds that the financial firms wrote off 61.15 trillion won from January 2003 to June 2007.

On the balance sheet, banks lost more than they earned, with aggregate net profits amounting to 47.68 trillion won.

Biggest Losers: KB and LG Credit Card–

The banks collectively lost most. They failed to collect 28.69 trillion won in loans.

Since 2003, banks have tried to size up their assets and, in the process, made more loans. Furthermore, they wrote off bad loans to beef up their financial health on paper.

Credit card and lending companies finished second with a loss of 26.21 trillion won, followed by savings and loan associations with a loss of 3.72 trillion won, insurance companies with a loss of 2.27 trillion won, and securities firms with a loss of 436.3 billion won.

In terms of individual institutions, KB (Kookmin Bank) lost an estimated 16 trillion won to defaulting debtors. LG Credit Card, which has been the epicenter of the credit crunch crisis in the recent past, had to write off 11 trillion won.

According to experts, financial firms wrote off a number of loans that could have been collected. Excessive write-offs and competition for more loans ruined their financial health. The write-offs were a strategic decision, they also argue. Last year, banks and other financial institutions reaped more profits than expected. Thus, to get more tax deductions, they wrote off more loans.

Sloppy Efforts to Collect –

Financial institutions lost 2.67 trillion won in just the first two quarters this year.

Thus, experts project that this year’s aggregate total of the write-offs could amount to that of last year, or 7.73 trillion won, considering the fact that some insurance companies and securities firms close their fiscal years in March, rolling over 2Q losses to this year’s accounting period.

Upon analysis, the supervisory body found out that even collectible loans were written off. From January 2003 to June this year, the Financial Supervisory Service deemed 52.16 trillion won as in default, while banks and other financial firms wrote off an amount 9 trillion won more than the figure.

Hongik University economics professor Jeon Seong-in explains, “It’s legitimate to write off bad loans. But it is another to artificially write off ‘profits.’ It’s harming shareholders’ interests.”

legman@donga.com