New bad loans reach 7.2 trillion won in Q2, with 80% from corporate lending

NPL ratio rises as loan-loss reserve coverage rate falls

ATM machines at major banks in Seoul. [Yonhap]
ATM machines at major banks in Seoul. [Yonhap]

Bad loans at domestic banks swelled by more than 1 trillion won ($728 million) in the second quarter, pushing the total to nearly 19 trillion won — the highest level in eight years.

Newly classified bad loans outpaced the volume banks wrote off or sold during the period, with roughly 80 percent of new non-performing loans stemming from corporate lending. The surge in bad loans also outstripped growth in loan-loss reserves, pulling the coverage ratio down to the 140 percent range.

According to the Financial Supervisory Service, domestic banks held 18.9 trillion won in non-performing loans as of end-June, up 1.2 trillion won from 17.7 trillion won at end-March. The figure is the largest since June 2018, when it stood at 19.4 trillion won.

The non-performing loan ratio — bad loans as a share of total credit — rose 0.03 percentage points quarter-on-quarter to 0.63 percent, and was up 0.04 percentage points from 0.59 percent a year earlier.

The increase was concentrated in corporate lending. Corporate bad loans rose 1 trillion won over the quarter to 15.2 trillion won. Household loans edged up 100 billion won to 3.4 trillion won from 3.3 trillion won, while credit card receivables held steady at 300 billion won.

New bad loans generated in the second quarter totaled 7.2 trillion won, up 1.7 trillion won from 5.5 trillion won in the previous quarter. Banks also stepped up cleanup efforts, with bad loan disposals rising from 4.4 trillion won to 6.1 trillion won over the same period — but that still fell short of new inflows. Of the loans disposed of, write-offs and sales accounted for 3.9 trillion won, collateral liquidation recovered 1.2 trillion won, and loan normalization accounted for 800 billion won.

The rise in new bad loans was particularly pronounced in corporate lending. New corporate non-performing loans rose 1.6 trillion won quarter-on-quarter to 5.7 trillion won. Large-enterprise bad loans climbed from 800 billion won to 1.2 trillion won, while small and medium-sized enterprise bad loans rose 1.2 trillion won to 4.5 trillion won from 3.3 trillion won. New household bad loans increased 100 billion won quarter-on-quarter to 1.4 trillion won.

A corporate loan counter at a bank in Seoul. [Yonhap]
A corporate loan counter at a bank in Seoul. [Yonhap]

Non-performing loan ratios rose broadly across categories. The corporate lending NPL ratio climbed from 0.74 percent to 0.77 percent, with large enterprises at 0.53 percent and small and medium-sized enterprises at 0.92 percent. The NPL ratio for self-employed borrowers also edged up from 0.66 percent to 0.67 percent — up 0.08 percentage points from 0.59 percent a year earlier.

The household lending NPL ratio rose 0.01 percentage points quarter-on-quarter to 0.33 percent. The mortgage NPL ratio was unchanged at 0.22 percent, while other unsecured loans ticked up from 0.66 percent to 0.67 percent. The credit card receivables NPL ratio rose 0.06 percentage points over the same period, from 1.82 percent to 1.88 percent.

As bad loans grew faster than reserves, the loan-loss reserve coverage ratio declined. Domestic banks' total loan-loss reserves stood at 26.9 trillion won at end-June, up 200 billion won from the previous quarter. But with bad loans rising 1.2 trillion won over the same period, the coverage ratio fell 7.5 percentage points to 142.9 percent from 150.4 percent — down 22.6 percentage points from 165.5 percent a year earlier.

The Financial Supervisory Service said the overall health of the banking sector remains sound, noting that the current NPL ratio is well below the pre-COVID-19 10-year average of 1.49 percent. However, the regulator plans to push banks to step up soundness management — including accelerating bad loan write-offs and sales and bolstering loss-absorption capacity — given rising NPL ratios in some vulnerable segments and lingering risks from a prolonged situation in the Middle East and the possibility of higher interest rates at home and abroad.

Meanwhile, the won-denominated loan delinquency rate at domestic banks stood at 0.56 percent at end-June, down 0.11 percentage points from 0.67 percent at end-May but up 0.04 percentage points from 0.52 percent a year earlier. The corporate loan delinquency rate rose 0.08 percentage points year-on-year to 0.68 percent, and the small and medium-sized enterprise loan delinquency rate also climbed 0.08 percentage points over the same period to 0.82 percent.


rim@heraldcorp.com