Warnings have been issued regarding the loan stability of domestic banks. In May, the delinquency rate for won-denominated loans surged to its highest level in 9 years and 7 months, while the delinquency rate for small business loans also rose to over 1% for the first time in 11 years. Although the government is promoting 'productive finance' to encourage an increase in corporate loans, concerns are growing that ongoing economic sluggishness could heighten the risk of defaults in the banking sector.
According to the Financial Supervisory Service on July 22, the delinquency rate for won-denominated loans at domestic banks reached 0.67% at the end of May, an increase of 0.06 percentage points from the previous month. This is the highest level since October 2016 (0.81%).
The rise in delinquency rates was primarily driven by corporate loans. The delinquency rate for corporate loans rose to 0.84%, up 0.10 percentage points in a month. The delinquency rate for large corporate loans increased to 0.27%, up 0.05 percentage points from the previous month, while the delinquency rate for small business loans reached 1.00%, the highest since May 2015 (1.11%).
The delinquency rate for household loans also increased to 0.45%, up 0.03 percentage points from the previous month. While the delinquency rate for mortgage loans remained relatively stable at 0.31%, the delinquency rate for other household loans, including credit loans, rose to 0.90%, an increase of 0.07 percentage points in a month.
The potential for continued growth in corporate loans adds to the burden. At the end of May, the outstanding balance of corporate loans at deposit banks was 1,408.3 trillion won, an increase of 10.6 trillion won from the previous month. As financial authorities push for productive finance to redirect funds concentrated in households and real estate to advanced industries and corporate sectors, the supply of corporate loans from banks is expected to expand further.
A Financial Supervisory Service official stated, 'If the increase in corporate loans coincides with a rise in market interest rates, the upward trend in delinquency rates could accelerate. We plan to actively promote the write-off and sale of non-performing loans in the banking sector and ensure that banks build sufficient capital and loan loss reserves.'
* This article has been translated by AI.
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