According to the Financial Supervisory Service on June 18, the delinquency rate for domestic banks' won-denominated loans (based on more than one month of overdue principal and interest) rose to 0.61% at the end of April, up from 0.56% at the end of March.
While the delinquency rate had decreased due to the banks' efforts to manage non-performing loans in March, this was only a temporary effect. In April, new delinquencies amounted to 2.9 trillion won, an increase of 200 billion won from the previous month, while the amount of non-performing loans resolved dropped from 4.3 trillion won to 1.6 trillion won, leading to a renewed upward trend in the delinquency rate.
The increase in delinquency rates is particularly pronounced among economically sensitive small businesses, individual entrepreneurs, and borrowers with credit loans. The delinquency rate for small business loans rose to 0.90%, an increase of 0.09 percentage points from the previous month. Among these, the delinquency rates for small corporations and individual entrepreneurs rose by 0.1 percentage points and 0.07 percentage points, respectively, reaching 0.98% and 0.78%. For household loans, excluding mortgage loans, the delinquency rate for credit loans increased by 0.07 percentage points to 0.83%.
The slow economic recovery, coupled with declining sales and ongoing cost pressures, is rapidly weakening borrowers' repayment capacity. Financial authorities interpret the rise in delinquency rates as a clear sign of increasing financial distress among vulnerable borrowers in the banking sector.
In the secondary financial sector, where borrower credit ratings are generally lower, the trend of increasing delinquencies is even more pronounced. The delinquency rate in the savings bank sector rose to 6.7% in the first quarter of this year, up from 6.0% in the previous quarter. The delinquency rate for corporate loans jumped to 8.9%, an increase of 0.9 percentage points during the same period.
The challenge lies in the lack of clear signals for an economic rebound that could lower delinquency rates. The government has projected that growth may slow due to increased volatility in international financial markets and energy prices, along with ongoing supply chain disruptions and inflationary pressures.
Earlier this year, there were hopes for improved repayment conditions through interest rate cuts, but rising oil and price pressures due to risks in the Middle East, along with discussions of potential further interest rate hikes by the Bank of Korea, suggest that vulnerable borrowers may face even greater difficulties in the second half of the year.
Financial authorities are viewing the high inflation and exchange rate trends, along with the potential for rising market interest rates, as major risks. They plan to enhance monitoring of delinquency rates and new delinquency occurrences while encouraging banks to increase their provisions for bad debts. Support for vulnerable borrowers facing delinquency concerns will also be expanded through measures such as debt restructuring.
A financial sector official stated, "As the economic recovery is delayed, the risk of financial distress among vulnerable borrowers is likely to spread throughout the financial sector. In the second half of the year, managing new delinquencies and supporting vulnerable borrowers will be key challenges for maintaining financial stability."
* This article has been translated by AI.
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