Korean banks’ loan delinquency rate climbs up in October

The delinquency rate of won-denominated loans extended by South Korean commercial lenders rose in October from the previous month, data showed on Friday.

According to the Financial Supervisory Service, the won-denominated loan delinquency rate, or loans overdue for at least one month, of local lenders, stood at 0.58 percent at the end of October, up 0.07 percentage point from the end of the previous month.

The figure, however, remained lower than the 0.61 percent recorded at the end of August.

Typically, delinquency rates tend to rise during a quarter and decline at quarter-end, as banks strengthen their management of delinquent loans toward the end of each quarter.

This pattern was evident this year as well, with the delinquency ratio rising on month in January and February before falling to 0.53 percent in March.

It rose again in April and May before declining to 0.52 percent in June.

The third quarter also followed the same trend, rising in July and August and then dipping to 0.51 percent in September.

New delinquent loans totaled 2.9 trillion won ($2 billion) in October, an increase of 400 billion won from the previous month.

The amount of delinquent loans resolved came to 1.3 trillion won, down 3.5 trillion won from the prior month.

By segment, the delinquency rate for corporate loans rose 0.08 percentage point from the end of the previous month to 0.69 percent.

The figure of loans for small and medium-sized corporations saw the largest increase during the same period, rising 0.12 percentage point to 0.93 percent.

Other corporate sectors also saw hikes in the delinquency rate: small and medium-sized enterprise (SME) loans increased 0.09 percentage point to 0.84 percent; loans to self-employed borrowers rose 0.07 percentage point to 0.72 percent; and loans to large corporations climbed 0.02 percentage point to 0.14 percent.

The delinquency rate for household loans also grew by 0.03 percentage point from the previous month to 0.42 percent.

The delinquency rate for mortgage loans edged up 0.02 percentage point to 0.29 percent, while the delinquency rate for household loans excluding mortgages—such as credit loans—jumped 0.10 percentage point to 0.85 percent.

“There are concerns that credit deterioration could expand, particularly in vulnerable segments such as self-employed borrowers, as well as in sectors suffering prolonged downturns, including construction and regional real estate,” said an FSS official. “We will encourage banks to maintain sufficient loss-absorption capacity through measures such as accelerated sales of nonperforming loans and the expansion of loan-loss provisions in preparation for a potential increase in delinquencies and bad loans.”