Delinquency rates in the banking sector are rising rapidly. The prolonged high interest rates and sluggish regional economies have led to an increase in borrowers unable to meet their interest obligations. As the burden of maintaining financial soundness grows, banks are expected to tighten lending standards further in the second half of the year.
According to the financial sector on August 5, the average delinquency rate for five regional banks—BNK Busan, BNK Gyeongnam, iM Bank, Jeonbuk Bank, and Gwangju Bank—was recorded at 1.19% at the end of the second quarter of this year, an increase of 0.17 percentage points from the end of last year.
Among these banks, Jeonbuk Bank had the highest delinquency rate at 1.69%, followed by Gwangju Bank at 1.21%, Gyeongnam Bank at 1.15%, Busan Bank at 1.02%, and iM Bank at 0.87%. Four of the five banks reported delinquency rates exceeding 1%, with iM Bank nearing 0.9%.
As the regional economic downturn continues alongside high interest burdens, the financial soundness of regional banks is increasingly at risk.
Even the five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup— which reported over 9 trillion won in net profit in the first half of the year, have not escaped the trend of rising delinquency rates. By the end of the second quarter, the average delinquency rate for these banks rose to 0.39%, up 0.05 percentage points from 0.34% at the end of last year.
The delinquency rate for household loans averaged 0.33%, an increase of 0.01 percentage points from the previous quarter, marking the highest level since the first quarter of 2016 when it was 0.36%.
As delinquency rates rise, banks face increased burdens from loan loss provisions and are likely to assess borrowers' repayment abilities and creditworthiness more conservatively. With the possibility of further interest rate hikes and the need to meet household loan volume targets, lending assessments are expected to become even stricter in the second half of the year.
In fact, a survey conducted by the Bank of Korea among credit officers at financial institutions indicated that the attitude index for household housing loans among 18 domestic banks was recorded at minus (-) 11 for the third quarter. A negative index indicates that more financial institutions plan to tighten lending standards than those that intend to ease them.
The concern is that as banks strengthen their selective lending policies, the funding conditions for vulnerable borrowers may worsen. There are fears that borrowers who find it difficult to secure loans from banks may be pushed into the second financial sector, such as savings banks, credit card companies, and capital firms, where interest rates are relatively higher, exacerbating the 'balloon effect.'
A financial sector official stated, "If delinquency rates continue to rise, banks will have no choice but to scrutinize borrowers' repayment abilities and creditworthiness more rigorously. As loan demand increases while lending avenues shrink, the disparity in financial accessibility among borrowers may widen."
According to the financial sector on August 5, the average delinquency rate for five regional banks—BNK Busan, BNK Gyeongnam, iM Bank, Jeonbuk Bank, and Gwangju Bank—was recorded at 1.19% at the end of the second quarter of this year, an increase of 0.17 percentage points from the end of last year.
Among these banks, Jeonbuk Bank had the highest delinquency rate at 1.69%, followed by Gwangju Bank at 1.21%, Gyeongnam Bank at 1.15%, Busan Bank at 1.02%, and iM Bank at 0.87%. Four of the five banks reported delinquency rates exceeding 1%, with iM Bank nearing 0.9%.
As the regional economic downturn continues alongside high interest burdens, the financial soundness of regional banks is increasingly at risk.
Even the five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup— which reported over 9 trillion won in net profit in the first half of the year, have not escaped the trend of rising delinquency rates. By the end of the second quarter, the average delinquency rate for these banks rose to 0.39%, up 0.05 percentage points from 0.34% at the end of last year.
The delinquency rate for household loans averaged 0.33%, an increase of 0.01 percentage points from the previous quarter, marking the highest level since the first quarter of 2016 when it was 0.36%.
As delinquency rates rise, banks face increased burdens from loan loss provisions and are likely to assess borrowers' repayment abilities and creditworthiness more conservatively. With the possibility of further interest rate hikes and the need to meet household loan volume targets, lending assessments are expected to become even stricter in the second half of the year.
In fact, a survey conducted by the Bank of Korea among credit officers at financial institutions indicated that the attitude index for household housing loans among 18 domestic banks was recorded at minus (-) 11 for the third quarter. A negative index indicates that more financial institutions plan to tighten lending standards than those that intend to ease them.
The concern is that as banks strengthen their selective lending policies, the funding conditions for vulnerable borrowers may worsen. There are fears that borrowers who find it difficult to secure loans from banks may be pushed into the second financial sector, such as savings banks, credit card companies, and capital firms, where interest rates are relatively higher, exacerbating the 'balloon effect.'
A financial sector official stated, "If delinquency rates continue to rise, banks will have no choice but to scrutinize borrowers' repayment abilities and creditworthiness more rigorously. As loan demand increases while lending avenues shrink, the disparity in financial accessibility among borrowers may widen."
* This article has been translated by AI.
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