SEOUL, September 02 (AJP) - South Korean banks' bad loans climbed to their highest level in eight years at the end of June as lending to small and midsized businesses sour amid rising interest rates.
Nonperforming loans (NPLs), or loans that borrowers are struggling to repay, reached 18.9 trillion won ($13.8 billion) at the end of June.
The amount was up 1.2 trillion won from three months earlier, according to data released Wednesday by the Financial Supervisory Service (FSS). The total was the largest since June 2018, when it stood at 19.4 trillion won.
The watchdog said banks remained financially sound overall but called for closer monitoring as bad loans continued to rise in vulnerable sectors and economic uncertainty persisted.
The increase pushed the industry's NPL ratio to 0.63 percent from 0.60 percent at the end of March. The ratio measures bad loans as a share of banks' total lending and is widely used as an indicator of asset quality.
Corporate lending accounted for most of the deterioration. Troubled business loans increased by 1 trillion won over the quarter to 15.2 trillion won, the largest amount since March 2019.
The corporate NPL ratio rose 0.03 percentage point to 0.77 percent, its highest level since March 2021.
The increase came as more borrowers fell behind on their repayments during the second quarter. Banks reported 7.2 trillion won in new bad loans, up 1.7 trillion won from the previous quarter.
Businesses accounted for 5.7 trillion won of the new bad loans, up 1.6 trillion won from the previous quarter. Small and midsized companies made up 4.5 trillion won, an increase of 1.2 trillion won. The figure for large companies rose by 400 billion won to 1.2 trillion won.
That pressure was also evident in NPL ratios. The ratio for small and midsized businesses rose 0.04 percentage point to 0.92 percent, while the figure for large companies increased 0.03 percentage point to 0.53 percent.
Within the smaller-business segment, the ratio for incorporated companies climbed 0.05 percentage point to 1.08 percent. The figure for sole proprietors edged up 0.01 percentage point to 0.67 percent.
Household bad loans rose more modestly, increasing by 100 billion won to 3.4 trillion won and lifting the NPL ratio by 0.01 percentage point to 0.33 percent. The ratio for mortgage loans remained unchanged at 0.22 percent. While the figure for other household borrowing, including unsecured loans, rose 0.01 percentage point to 0.67 percent.
Credit card loans showed a larger increase in the NPL ratio, rising 0.06 percentage point to 1.88 percent, while the amount of bad loans remained unchanged at 300 billion won.
Banks cleared 6.1 trillion won in bad loans during the second quarter, up 1.7 trillion won from the previous quarter.
At the end of June, they also had 26.9 trillion won set aside to cover possible loan losses, up 200 billion won from three months earlier. Even so, reserves relative to bad loans fell to 142.9 percent at the end of June, down from 150.4 percent at the end of March.
AJP Takeaways
• South Korean banks' nonperforming loans reached 18.9 trillion won ($13.8 billion) at the end of June 2026, the largest amount since June 2018, according to the Financial Supervisory Service.
• Corporate nonperforming loans rose to 15.2 trillion won at the end of June 2026, with small and midsized businesses accounting for 4.5 trillion won of new bad loans in the second quarter.
• South Korean banks held 26.9 trillion won in loan-loss reserves at the end of June 2026, while reserves relative to bad loans fell to 142.9 percent from 150.4 percent at the end of March 2026.
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