South Korea’s Big 4 Banks Post Record Profit, but Bad Loans Surge More Than 50%

South Korea’s four biggest commercial banks — KB Kookmin, Shinhan, Hana and Woori — posted record net profit last year, but key asset-quality indicators worsened as troubled loans climbed sharply. With more borrowers struggling to repay since the COVID-19 period, the combined volume of bad loans has jumped by more than 50% in four years, raising concerns that hidden stress could surface as rate-cut expectations fade and market rates rise.
 
According to the financial sector on Feb. 8, the four banks’ combined net profit for last year totaled 13.9919 trillion won, up 4.9% from 13.3435 trillion won a year earlier and the highest on record.
 
The Bank of Korea cut its benchmark interest rate twice last year, in February and May. Even so, interest income kept rising as loan assets expanded. Typically, falling benchmark rates squeeze banks’ net interest margins, but last year loan growth was enough to offset the margin decline and lift interest earnings.
 
At the same time, troubled loans grew quickly. As of the end of December last year, the four banks’ combined bad loans totaled 12.4780 trillion won. The figure includes “precautionary” loans that are one to three months overdue and nonperforming loans (NPLs) that are more than three months overdue. It was up about 52.6% from 2021.
 
By year-end totals, bad loans were 8.1736 trillion won in 2021, 8.7892 trillion won in 2022, 9.6781 trillion won in 2023 and 11.0639 trillion won in 2024. The share of total loans that were more than three months overdue rose to 0.30% last year, the highest level in five years.
 
Both precautionary loans and NPL balances were the highest since 2021. NPLs rose to 4.5489 trillion won at the end of last year from 2.8643 trillion won at the end of 2021, an increase of 59%. That means more than 1.6 trillion won in unpaid debt accumulated over four years. Precautionary loans reached 7.9291 trillion won at the end of last year, up about 49% from 2021.
 
As bad loans increased, banks’ ability to absorb losses also weakened. The NPL coverage ratio, a measure of reserves relative to bad loans, fell to 171.7% last year, dropping below 200% again for the first time in four years. Banks set aside large provisions each year, but the pace of bad-loan growth has outstripped those buffers.
 
With the Bank of Korea signaling an end to rate cuts and market rates rebounding, concerns are growing that more bad debt could emerge. Domestic demand has weakened, and rising rates have pushed small and midsize businesses and self-employed owners closer to their repayment limits, according to the report.
 
A financial industry official said, “Since COVID-19, the pace of deterioration has been accelerating again along with the economic slowdown,” adding, “The larger the volume of bad loans, the more provisions banks must build, which will further hurt profitability.”