SEOUL, October 12 (AJP) — Strip away the chip halo and stress is deepening across corporate Korea, with overdue loans growing far faster than lending as elevated financing costs push vulnerable smaller companies closer to default.
Delinquent corporate loans at domestic banks reached 10.1 trillion won ($7.6 billion) in the second quarter, more than triple the 2.9 trillion won recorded at the end of 2021, according to Bank of Korea data submitted to Democratic Party lawmaker Ahn Do-geol.
Outstanding corporate loans at banks increased 30.7 percent over the same period to 1,400.5 trillion won. Overdue debt thus grew at roughly eight times the pace of lending.
Across banks and nonbank financial institutions, corporate lending reached 2,000.1 trillion won in the second quarter.
The corporate loan delinquency rate at nonbank institutions stood at 6.28 percent, compared with 0.68 percent at banks, highlighting sharper deterioration outside the banking sector.
Smaller businesses face a particularly heavy burden. Across financial institutions, the delinquency rate on loans to small and medium-sized enterprises stood at 2.94 percent in the second quarter, more than 10 times the 0.28 percent rate for large corporations, according to separate BOK data submitted to the National Assembly.
Among vulnerable self-employed borrowers — those with multiple debts and either low income or weak credit — the delinquency rate rose to 12.7 percent from 12.1 percent at the end of 2025.
The weakness extends beyond borrowers already behind on payments.
The BOK identified 5,632 marginal companies in 2025, equivalent to 19.1 percent of firms covered by its analysis. Among SMEs, the share rose to 20.0 percent from 15.5 percent in 2021.
The central bank defines marginal companies as businesses whose operating profits have failed to cover interest expenses for three consecutive years.
Stress is especially pronounced among cooperative lenders. The number of mutual-finance cooperatives and community credit cooperatives with delinquency rates of at least 10 percent climbed 66.2 percent in six months to 339 at the end of June, according to data submitted to Democratic Party lawmaker Song Ok-joo.
Corporate loan delinquency rates reached 10.24 percent at credit unions and 10.17 percent at community credit cooperatives, far above their household-loan delinquency rates.
For syndicated loans jointly extended by cooperatives, delinquency rates ranged from 14.64 percent at credit unions to 17.87 percent at forestry cooperatives.
Worse, most new lending has gone toward operating needs rather than fixed investment.
Loans to industries by deposit-taking institutions increased 30.6 trillion won in the second quarter. Working capital accounted for 23.7 trillion won, or about 77 percent, of that increase, while facility financing rose by 6.9 trillion won.
Working-capital loans finance wages, raw materials and other day-to-day expenses. Their growth does not by itself establish that companies are borrowing to repay existing debt, but it shows that lending is expanding much faster for ongoing operations than for investment in facilities.
The average rate on new bank loans to SMEs increased 16 basis points to 4.38 percent in August, returning to its June level — the highest since February 2025.
The overall corporate lending rate rose to 4.30 percent, the highest since March 2025, while the rate for large companies stood at 4.21 percent.
Market funding also remains expensive. The yield on three-year corporate bonds rated AA- stood at 4.627 percent on Monday, just 2.6 basis points below the July 24 level of 4.653 percent, which was the highest since November 2023.
The BOK estimated in its September financial stability assessment that a 25-basis-point increase in interest rates would add about 3.6 trillion won to companies’ annual interest burden.
Its analysis of previous tightening cycles found that bank corporate loan delinquency rates tended to respond most strongly about 15 months after a rate increase. The impact on SMEs and vulnerable household borrowers peaked around nine months later.
The second-quarter deterioration therefore predates the BOK’s back-to-back rate increases in July and August. Those hikes could add pressure to borrowers whose repayment capacity was already weakening, with much of the effect yet to appear in delinquency figures.
BOK Gov. Shin Hyun-song acknowledged that uneven burden during a parliamentary audit Monday.
“When interest rates rise, vulnerable borrowers are hit particularly hard,” Shin told lawmakers, stressing the importance of targeted fiscal support alongside monetary policy.
The central bank has nevertheless kept further tightening on the table as inflation remains above target and financial imbalances, including household debt and housing prices, persist.
The policy dilemma lies in the widening gap beneath Korea’s headline growth.
Record chip earnings can lift exports and national income while smaller businesses struggle to cover interest payments. Further tightening aimed at containing inflation could deepen that divide before the effects of the summer’s hikes have fully worked through the economy.
AJP Takeaways
- Corporate delinquencies are rising far faster than lending: Overdue bank loans more than tripled to 10.1 trillion won in Q2 from end-2021, while outstanding corporate loans rose 30.7 percent.
- Stress is concentrated among smaller and weaker borrowers: SME delinquency rates were more than 10 times those of large corporations, while the rate for vulnerable self-employed borrowers reached 12.7 percent.
- Higher rates could expose more weakness: Much of the deterioration predates the BOK’s July-August tightening, meaning the full impact of higher borrowing costs has yet to show up in delinquency data.
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