South Korean banks’ bad loans hit 18.9 trillion won, highest in eight years

Bad loans at South Korea’s domestic banks have climbed to 18.9 trillion won, their highest level in eight years, as more corporate borrowers failed to repay loans on time.

The Financial Supervisory Service reported that the total rose by 2.3 trillion won from 16.6 trillion won a year earlier. The June figure stood just below the 19.4 trillion won recorded at the end of June 2018.

The increase was driven largely by a rise in unpaid debts among some large companies. New bad loans from large corporations reached 1.2 trillion won during the second quarter, up 800 billion won from the same period a year earlier. New bad loans among small and medium-sized enterprises totaled 4.5 trillion won, an increase of 100 billion won. Loans unpaid for at least three months are classified as new bad loans.

The sector-wide bad-loan ratio rose to 0.63% at the end of June, from 0.59% a year earlier. That was the highest level in five and a half years, since 0.65% at the end of December 2020. Corporate lending recorded a 0.77% bad-loan ratio. Within small and medium-sized businesses, the ratio for small corporations fell to 1.08%, while the ratio for sole proprietors rose to 0.67%.

The Financial Supervisory Service said banks need to pay closer attention to financial soundness management, given the possibility that tensions in the Middle East could continue and domestic and overseas interest rates could rise. It plans to strengthen oversight by encouraging banks to sell or write off bad loans more actively.