Delinquent loans for small business loans from domestic insurance companies have surged significantly over the past year. This increase is attributed to rising defaults in real estate project financing (PF) and individual loans from some insurers. Non-life insurers have seen delinquent loans grow faster than their loan balances, while life insurers have experienced a 3.6-fold increase in delinquent loans despite a decrease in their loan balances, raising concerns about the management of corporate credit quality.
According to the financial sector on the 27th, as of the end of June this year, the outstanding balance of small business loans from domestic non-life insurers was 50.4167 trillion won, an increase of 5.2423 trillion won (11.6%) from the same period last year (45.1744 trillion won). During the same period, the balance of delinquent loans rose from 683.5 billion won to 912.3 billion won, an increase of 228.8 billion won (33.5%). While loans have expanded, delinquent loans have increased at an even faster pace. In contrast, the outstanding balance of loans to large corporations decreased by 788 billion won (0.5%) to 15.8688 trillion won.
Meritz Fire & Marine Insurance led the increase in delinquent loans among non-life insurers. The balance of delinquent loans at Meritz rose from 432.8 billion won to 669.3 billion won, an increase of 236.5 billion won (54.6%), surpassing the overall increase for non-life insurers. Meritz attributed this rise to the cumulative effects of stricter PF project evaluation criteria implemented in June 2024.
Despite reducing their loan balances, life insurers have seen a sharp rise in delinquent loans. As of the end of June, the outstanding balance of small business loans was 35.935 trillion won, down 3.9909 trillion won (10.0%) from the same period last year. The balance of loans to large corporations also decreased by 2.3756 trillion won (8.1%) to 26.9831 trillion won. However, the balance of delinquent loans for small businesses surged to approximately 345.3 billion won, up 248.7 billion won (257.4%) from the same period last year (96.6 billion won).
The increase in delinquent loans at life insurers was driven by specific loans from certain companies. Kyobo Life's balance of delinquent loans for small businesses rose from 8.4 billion won to 143.4 billion won, marking the largest increase. A Kyobo Life representative explained that this was due to some individual loans being reclassified as newly delinquent loans. Fubon Hyundai Life saw its delinquent loans rise from 85 million won to 589 billion won, while Heungkuk Life's increased from 200 million won to 193 billion won. However, Heungkuk Life noted that delinquencies from certain business locations that occurred in March were resolved by July.
The concentration of delinquencies in specific loans also relates to the loan structure of insurance companies. In addition to directly lending to businesses, insurers provide funds to special purpose companies (SPCs) established for specific projects such as power plants, roads, and real estate development. If an SPC is classified as a small business, large project loans may also be counted as small business loans. Therefore, it is difficult to interpret the delinquency figures from specific projects as a general decline in repayment ability across all small businesses.
Nevertheless, even if delinquencies are concentrated in certain loans, the burden of maintaining soundness for insurers is inevitable. According to the Financial Supervisory Service, as of the end of June, the overall delinquency rate for loans from insurance companies reached 1.08%, marking the first time it has risen above 1% since September 2011. Notably, the delinquency rate for small business loans increased from 0.80% at the end of March to 1.46% at the end of June, a rise of 0.66 percentage points.
An industry insider stated, "The reasons for the increase in delinquencies vary by insurer, making it difficult to conclude that there is a widespread deterioration in the industry. However, given the significant impact on soundness indicators, it is essential to focus on resolving existing non-performing assets."
* This article has been translated by AI.
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