Bad loans at Korea's five largest banks topped 6.4 trillion won ($4.5 billion) for the first time in the second quarter, industry data showed Wednesday.
The nonperforming loans include financing with principal or interest payments overdue by at least three months, as well as loans on which banks no longer recognize interest as income because repayment has become uncertain. Prolonged high interest rates and a sluggish economy make it harder for borrowers, particularly businesses, to repay their debts.
Nonperforming loans at five major banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — totaled 6.41 trillion won at the end of the second quarter.
The figure was up 28 percent from 5.01 trillion won at the end of last year and marked the first time the five banks’ combined nonperforming loans surpassed 6 trillion won.
Nonperforming loans also accounted for a growing share of the banks’ overall lending. The ratio rose 0.07 percentage points to 0.34 percent at the end of the second quarter from 0.27 percent at the end of last year, the highest level since February 2020, when the ratio stood at 0.34 percent amid the spread of Covid-19.
The issue has been building for years.
Nonperforming loans at the five banks stood at 2.79 trillion won at the end of 2022 before rising to 3.51 trillion won at the end of 2023 and 4.37 trillion won by the end of 2024. Such loans climbed further to 5.01 trillion won at the end of last year.
The share of nonperforming loans in total lending also rose steadily, from 0.18 percent at the end of 2022 to 0.21 percent in 2023, 0.25 percent in 2024 and 0.27 percent last year.
A visitor walks inside a bank next to a sign that says "individual loans" at a bank in Seoul on Aug. 11NEWS1
The deterioration was particularly pronounced in corporate loans compared with household loans.
Corporate nonperforming loans surged 36.4 percent to 4.65 trillion won at the end of June from 3.41 trillion won at the end of last year.
Over the same period, nonperforming loans rose to 0.42 percent of total corporate lending from 0.32 percent.
The increase was much smaller for household loans. Household nonperforming loans rose 10.2 percent to 1.76 trillion won at the end of June from 1.6 trillion won at the end of last year.
Nonperforming loans accounted for 0.09 percent of total household lending at the end of June, unchanged for five consecutive quarters since the end of March of last year. The ratio remained well below the 0.42 percent recorded for corporate lending.
“The prolonged period of high interest rates, delayed economic recovery, weak domestic demand and continued external uncertainty have weakened the repayment capacity of both corporate and individual borrowers,” a source at a commercial bank said. “As the real estate market slowdown and weak business conditions in some vulnerable industries persist, managing distressed assets is becoming increasingly important.”
A pedestrian walks past an advertisement for a loan posted at a bank in Seoul on March 8.YONHAP
Another bank representative said that the nonperforming loans have increased particularly among small and midsize businesses.
Applications for court-led rehabilitation by some large corporations have also contributed to the increase. Large amounts of substandard-or-below and nonperforming loans remain on banks’ books until the rehabilitation proceedings are completed.
Banks are stepping up efforts to manage asset quality as loan problems increase. The banks are closely monitoring loans showing signs of distress and providing tailored financial support to borrowers considered capable of recovering. Such measures include debt restructuring, extending loan maturities and providing new working-capital loans.
A loan counter at a Shinhan Bank in Seoul on Dec. 23, 2020YONHAP
Banks are also writing off or selling loans that are unlikely to be recovered to reduce their nonperforming loan balances. At the same time, they are moving more quickly to dispose of troubled debt and setting aside provisions for potential losses.
“With domestic and external uncertainties continuing, we plan to further strengthen our asset-quality management,” a bank source said.
BY JEONG JAE-HONG [lee.jiwon10@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
