KB, Shinhan and Woori Tell SEC Inclusive Finance Push Could Strain Asset Quality

South Korea’s major financial holding companies have warned that the government’s expanding “shared growth” and inclusive finance policies could weigh on asset quality.

According to the financial sector on the 4th, KB Financial Group and Shinhan and Woori Financial Group recently filed earnings-related reports with the U.S. Securities and Exchange Commission.

Korean financial holding companies regularly submit reports to the SEC as they diversify funding channels. The filings shared a common concern about soundness. KB said that aligning with the government’s “productive finance” policy could lead to losses, adding that increased exposure to small and midsize enterprises this year could push delinquency rates higher.

Shinhan also said delinquency rates are likely to rise as it advances programs such as the Sae Do-yak Fund. Woori said measures such as adjusting interest rates for middle- and low-income borrowers could add pressure to its net interest margin, and it may need to take steps to reduce SME exposure.

Delinquency indicators have already worsened as banks expand lending to SMEs under the productive finance drive. The average corporate delinquency rate at the five major banks — KB, Shinhan, Hana, Woori and NH NongHyup — rose to 0.46% in the first quarter from 0.37% the previous quarter. The SME delinquency rate increased to 0.57% from 0.49%. Delinquencies in real estate-related industries have hit the highest level in 13 years as the Middle East war has delayed a recovery in the property market.

The burden from estimated losses and other asset-quality pressures is likely to grow, as high inflation and an economic slowdown further weaken conditions for SMEs. The Ministry of SMEs and Startups said the Small Business Health Index (SBHI) for May fell 3.2 points from the previous month to 77.6. A reading below 100 means more firms expect conditions to worsen than to improve.