Korean domestic banks recorded a won-denominated loan delinquency rate of 0.67% at May-end, up 0.06 percentage points from April-end (0.61%), marking the highest level since October 2016 when the rate stood at 0.81%. The Financial Supervisory Service (FSS) attributed the two-month consecutive rise to prolonged high inflation and high exchange rates stemming from the Middle East situation. This represents the continuation of an upward trend that began in December of last year, with only a temporary dip in March due to quarter-end delinquent asset cleanup efforts by banks.
Delinquency Rate Trend Shows Two-Month Consecutive Rise
The delinquency rate (based on principal and interest overdue for one month or more) climbed from 0.50% at December-end to 0.56% at January-end and 0.62% at February-end, before dropping to 0.56% at March-end. The rate then rose again to 0.61% at April-end and reached 0.67% at May-end. The March decline was analyzed as primarily driven by the 'quarter-end effect,' where banks typically expand delinquent asset cleanup activities, causing the rate to drop significantly before rising again in the following month.
New delinquencies in May totaled 3.3 trillion won, an increase of 0.4 trillion won from April (2.9 trillion won). Delinquent asset resolution amounted to 1.5 trillion won, a decrease of 0.1 trillion won from April (1.6 trillion won). The new delinquency rate in May stood at 0.13%, up 0.01 percentage point from April (0.12%).
Corporate Loans Record 0.84% Delinquency Rate in May
Corporate loan delinquency rate reached 0.84% at May-end, up 0.10 percentage points from April-end (0.74%). Large enterprise loan delinquency rate (0.27%) rose 0.05 percentage points from April-end (0.22%), while small and medium enterprise (SME) loan delinquency rate (1.00%) increased 0.10 percentage points from April-end (0.90%).
Household loan delinquency rate recorded 0.45% at May-end, up 0.03 percentage points from April-end (0.42%). Mortgage loan delinquency rate stood at 0.31%, while non-mortgage household loans (including credit loans) showed a delinquency rate of 0.90%.
FSS Announces Capital and Loss Absorption Measures
The FSS stated: "Considering changes in conditions such as increased corporate lending due to the full-scale implementation of productive finance and rising interest rates, there is a need to prepare for the possibility of an expanded upward trend in delinquency rates." The regulator added: "We plan to guide the banking sector to strengthen soundness management through active sale of non-performing assets and securing loss absorption capacity via sufficient capital and loan loss reserves."
FAQ
What caused Korean bank loan delinquency rates to rise in May?
The Financial Supervisory Service attributed the May rise to prolonged high inflation and high exchange rates stemming from the Middle East situation. New delinquencies totaled 3.3 trillion won in May, up 0.4 trillion won from April, while delinquent asset resolution decreased to 1.5 trillion won from 1.6 trillion won in April.
How did corporate loan delinquency rates compare to household loans in May?
Corporate loan delinquency rate reached 0.84% at May-end, up 0.10 percentage points from April, while household loan delinquency rate recorded 0.45%, up 0.03 percentage points from April. Within corporate loans, SME delinquency (1.00%) was significantly higher than large enterprise delinquency (0.27%).
