Regional Banks' Delinquency Rates Hit Record High Amid Economic Woes

Regional banks in South Korea are facing a crisis as their average delinquency rate has climbed to a record 1.33% by the end of the second quarter of 2024. This figure, the highest since 2008, signals a growing number of households and businesses struggling to meet their loan obligations amidst a sluggish economy and high interest rates.

The situation is particularly acute for banks like Jeonbuk Bank, which reported the highest delinquency rate at 1.69%, followed by Jeju Bank at 1.58%. These rates are more than three times higher than the 0.39% average seen among the nation's five major commercial banks. Regional banks, which have a higher proportion of loans to local small and medium-sized enterprises and self-employed individuals, are more vulnerable to economic downturns, with their non-performing loan indicators reflecting this sensitivity more rapidly.

The ripple effects of corporate loan defaults are spreading across regions. Data from the Bank of Korea shows that corporate loan delinquency rates in Daegu reached 1.29% by the end of May, the highest nationwide. Similar trends are observed in household loan delinquency rates, with Jeju leading at 1.24%, followed by Jeonbuk and Gwangju. This widespread difficulty in repayment stems from a combination of weak domestic demand and a worsening business environment for self-employed individuals.

Analysts predict that the upward trend in delinquency rates for regional banks may continue as interest rate hikes persist. Concerns are mounting over increased default risks, especially among small businesses, sole proprietors, and vulnerable borrowers facing mounting interest burdens. This deterioration in asset quality is already impacting the profitability of these regional institutions, with the combined net profit of five regional banks falling by 76.9 billion won in the first half of the year compared to the same period in 2023.