SEOUL, April 28 (AJP) — Loose liquidity binges tend to end in a Minsky moment — the payback for easy gains. For South Korea’s financial sector, that moment may be inching closer, as a domestic slowdown, supply-side inflation and accumulated leverage begin to converge.
Delinquency rates are rising with unusual speed.
The country’s five largest commercial banks reported an average delinquency rate of 0.4 percent for the first quarter of 2026, up from 0.34 percent in the previous quarter. As of April 7, the figure had already climbed to 0.46 percent — the highest level in about a decade, since the 2015 collapse of STX Group.
The first cracks appeared in loans to small and medium-sized enterprises (SMEs). At Hana Bank, SME delinquency rose to 0.61 percent from 0.47 percent a quarter earlier, the highest since its 2015 relaunch. Woori Bank reported a similar jump to 0.61 percent, the highest since the creation of Woori Financial Group in 2019.
Large corporates remain relatively insulated, though pockets of risk persist. KB Kookmin Bank stands out for its exposure to troubled real estate project financing.
The deterioration is no longer just marginal — it is accumulating in size.
Non-performing loans (NPLs) at four major banks, excluding NH, surged 11.6 percent in the first quarter to 5.77 trillion won ($3.92 billion), crossing the 5 trillion won mark for the first time in nearly eight years, since the fallout from the Hanjin Shipping bankruptcy.
While industry insiders say most loans are unlikely to be written off, the worsening economic outlook is casting doubt on that view.
"Internally, we acknowledge the growing risks and are working to diversify our exposure," said an official from one of the four major banks, speaking on condition of anonymity. Banks plan to secure maximum loan-loss provisions while tightening lending regulations for distressed borrowers.
The average NPL coverage ratio fell to 153.8 percent from 172.0 percent at end-2025, even as banks posted robust earnings of nearly 4 trillion won in the first quarter, including a record 1.16 trillion won at Shinhan Bank.
Households are showing similar fault lines.
Total household debt, already above 1,850 trillion won, expanded by another 3.5 trillion won last month. Mortgage rates — tied to more than 1,000 trillion won of that debt — continue to rise. According to the Bank of Korea, the average rate on new household loans climbed to 4.34 percent in March, the highest in nearly two and a half years.
More concerning is the shift in debt quality.
High-interest card loans, typically exceeding 10 percent, have ballooned to a record 43 trillion won. Long-term delinquencies of more than six months reached 470 billion won, surpassing 1 percent of total credit — the highest level in 11 years.
The macro backdrop offers little relief.
Stronger-than-expected first-quarter growth of 1.7 percent has reinforced the central bank’s hawkish stance, keeping the possibility of a rate hike alive. Under Governor Shin Hyun-song, price stability remains the priority — even at the risk of further squeezing already vulnerable borrowers.
“Higher rates are boosting bank earnings, but at the cost of rising systemic risk,” said Park Hye-jin, a researcher at Daishin Securities. “It is a paradox where profitability and instability rise together.”
While Korean equities remain among the best performers this year, other asset classes are weakening. The won traded at 1,473.6 per dollar on Tuesday, down more than 2 percent from the start of the year. Bond yields have surged, with the three-year Treasury at 3.529 percent and the 10-year at 3.861 percent — both up more than 60 basis points year to date.
The signals are not yet a crisis. But the pattern is familiar: leverage builds quietly, stress emerges at the edges, and buffers erode faster than expected.
That is typically how a Minsky cycle turns.
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