Jeonbuk Bank profits to weaken from real estate lending woes

Asset quality and profitability will weaken through 2024, Moody’s said.

Jeonbuk Bank will come under pressure from its unsecured personal loan exposure but should be able to retail good capitalisation and stable funding over the next 12 to 18 months, Moody’s said.

Asset quality and profitability are expected to weaken through 2024. Loan delinquencies are likely to rise over the next 12-18 months, as a result of the South Korean bank’s sizable exposure to unsecured personal loans and real estate-related loans.

As of 31 March, about 27% of its Korean-won denominated loans were to real estate and construction companies, Moody’s noted. The credit risks for this sector have risen amidst the current high interest rate environment and softening real estate market.

On the other hand, its lending to near-prime borrowers should help the bank maintain net interest margins that are higher than that of peers. However, this also subjects the bank to earnings volatility in the event of an economic downturn.

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The bank will also experience narrower net interest margins due to stricter regulatory oversights on lending rates, and increased competition for deposits, as well as increased credit costs.

Deposits are well-diversified and granular, supported by its strong customer base in its home region of the Jeonbuk province, where it holds 24.8% deposit market share as of 31 May.

Liquidity, however, is weaker than its domestic and global peers, Moody’s noted.

Taking all these into account, Moody’s expects Jeonbuk Bank’s profitability to decline over the next 12-18 months.