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🇰🇷 South Korea /Economy & Trade

South Korea's household loan delinquency rate hits 10-year high amid rising rates

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

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  • South Korea's five major banks reported a household loan delinquency rate of 0.33% at the end of June, the highest in 10 years.
  • The combined non-performing loan ratio for households and corporations also reached an eight-year high of 7.4 trillion won.
  • Rising market interest rates and potential further rate hikes raise concerns about increasing loan defaults for both households and businesses.

South Korea's five major banks, KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, revealed their second-quarter financial results, showing a concerning rise in household loan delinquencies. The average household loan delinquency rate stood at 0.33% as of the end of June, a slight increase from 0.32% in March and the highest level in a decade, surpassing the 0.36% recorded in the first quarter of 2016.

Rising market interest rates and potential further rate hikes could lead to more defaults on household and corporate loans.

— City bank officialExplaining the reasons behind the rising delinquency rates.

NH Nonghyup Bank reported the highest household delinquency rate at 0.48%, a 12-year high. Hana Bank also saw an increase to 0.32%, up from 0.28% at the end of last year. Woori Bank's rate was 0.31%, KB Kookmin Bank's 0.27%, and Shinhan Bank's 0.25%.

Small and medium-sized enterprise (SME) loan delinquencies also climbed. The average SME delinquency rate across the five banks rose from 0.49% at the end of last year to 0.58% by the end of the second quarter. Woori Bank's SME delinquency rate reached 0.75%, its highest since the first quarter of 2019, while Shinhan Bank's rate of 0.49% was its highest in nine years.

High interest rates are increasing borrowers' debt repayment burdens, while sluggish domestic demand is reducing household disposable income, leading to higher household loan delinquency rates.

— City bank officialExplaining the reasons behind the rising delinquency rates.

Concerns are mounting as the Bank of Korea's Monetary Policy Committee continues its monetary tightening. The yield on 5-year corporate bonds, a key indicator for fixed-rate mortgages, rose to 4.531% on July 24, up from 4.241% at the end of June. Fixed-rate mortgage rates at the five major banks now range from 4.84% to 7.57%, with the upper limit exceeding 7.5% for the first time since April 2022. This trend, coupled with a recent stock market downturn, fuels worries about increasing defaults on household loans, particularly those taken out for investments.

If benchmark interest rates rise further and asset prices like stocks adjust, there is a concern that household loan delinquencies will increase.

— City bank officialExpressing concerns about future loan defaults.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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