A bank consultation desk in Seoul. [Herald DB]
A bank consultation desk in Seoul. [Herald DB]

The delinquency rate on bank loans hit its highest level in nine years and seven months in May, as defaults concentrated among small and medium-sized corporations pushed the SME delinquency rate above 1 percent. The figures point to a growing number of financially troubled small and medium-sized enterprises unable to repay their bank loans on time.

According to the Financial Supervisory Service on Wednesday, the delinquency rate on won-denominated loans at domestic banks stood at 0.67 percent at the end of May — up 0.06 percentage points from the end of April (0.56 percent), according to preliminary figures.

The rate was also 0.03 percentage points higher than a year earlier and marked the highest reading since October 2016 (0.81 percent).

The FSS attributed the rise to a simultaneous increase in newly delinquent bonds and a decline in the volume of delinquent bonds written off. New delinquencies in May totaled 3.3 trillion won ($2.23 billion), up 400 billion won from April's 2.9 trillion won, while write-offs fell 100 billion won to 1.5 trillion won. As a result, the new delinquency rate edged up 0.01 percentage points from the previous month to 0.13 percent.

Trend in won-denominated loan delinquency rates [Financial Supervisory Service]
Trend in won-denominated loan delinquency rates [Financial Supervisory Service]

By segment, the rise in corporate loan delinquencies was particularly pronounced.

The corporate loan delinquency rate reached 0.84 percent at the end of May, up 0.10 percentage points from the end of April. The rate for large corporations rose 0.05 percentage points to 0.27 percent, while the rate for small and medium-sized enterprises climbed 0.10 percentage points to 1.00 percent. Compared with the end of May last year, the large-corporate rate was up 0.12 percentage points and the SME rate up 0.05 percentage points.

The large-corporate rate was the highest since September 2021 (0.28 percent), a span of four years and eight months, while the SME rate reached its highest level since May 2015 (1.11 percent) — an 11-year high.

The delinquency rate for small and medium-sized corporations hit 1.11 percent, rising 0.13 percentage points in a single month — the highest since May 2017 (1.17 percent) and well above the 1 percent threshold widely regarded as a warning sign of deteriorating loan quality. The delinquency rate for self-employed borrowers rose 0.06 percentage points from April to 0.84 percent.

The household loan delinquency rate rose 0.03 percentage points from the end of April to 0.45 percent. The mortgage delinquency rate edged up 0.01 percentage points to 0.31 percent, while the rate for unsecured and other non-mortgage loans climbed 0.07 percentage points from the end of April to 0.90 percent. Both figures were down 0.01 percentage points and 0.04 percentage points, respectively, from May last year.

The FSS said the upward trend in delinquency rates has persisted in recent months. It added that banks need to prepare for the possibility of a further acceleration, given the expansion of corporate lending driven by the push for productive finance and the impact of rising interest rates.

"We plan to guide banks to strengthen soundness management by actively selling off non-performing loans and building sufficient capital and loan-loss reserves to enhance their loss-absorption capacity," an FSS official said.


ehkim@heraldcorp.com