Growth of the South Korean financial industry hit a six-year low in the first half due mainly to the struggling savings bank sector and insurers’ poor track records, data showed Monday.

The local financial industry expanded 1.6 percent on-year in the January-June period, the slowest gain since a 0.2 percent on-year contraction registered in the second half of 2004, according to data by the Bank of Korea.

The sluggish growth resulted largely from an increase in savings bank insolvencies, sparked by a massive pile-up of bad debt stemming from sour property loans. Earlier this year, the government suspended eight savings banks as part of its efforts to overhaul the ailing sector.

The BOK also said increased natural disasters, such as the earthquake and tsunami that rocked Japan on March 11, forced insurers to pay out more insurance claims, cutting into their earnings.

“The savings bank crisis hampered growth of the non-bank sector in the firs six months of this year,” a BOK official said. “The insurance industry also took a hit from rising natural disasters.”

The central bank also said the construction sector contracted 9.8 percent on-year in the first half, weighed down by a prolonged slump in the local property market. The figure was the steepest fall since a 14.7 percent decline posted in the second half of 1998, when Korea was undergoing the 1997-98 Asian financial crisis. 

(Yonhap News)