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

South Korean banks held 18.9 trillion won in bad loans at the end of June, the largest balance in eight years. The Financial Supervisory Service said the figure increased by 1.2 trillion won from the end of March, approaching the 19.4 trillion won recorded in June 2018.

Corporate lending drove the deterioration. Bad corporate loans rose by 1 trillion won to 15.2 trillion won, their highest level since March 2019. Bad household loans increased by 100 billion won to 3.4 trillion won, while credit-card receivables remained unchanged at 300 billion won.

Small and medium-sized companies accounted for much of the new deterioration. Banks recorded 7.2 trillion won in newly incurred bad loans during the second quarter, up 1.7 trillion won from the previous quarter. New bad loans at small and medium-sized companies rose by 1.2 trillion won to 4.5 trillion won, representing 70.6% of the overall increase.

New bad loans at large companies increased by 400 billion won to 1.2 trillion won. New household bad loans rose by 100 billion won to 1.4 trillion won. Bad loans are lending that banks judge difficult to recover in principal or interest, after accounting for loans written off, sold or recovered through collateral disposal.

The overall bad-loan ratio rose to 0.63% from 0.60% three months earlier. The ratio for corporate loans increased to 0.77%, while the household-loan ratio rose by 0.01 percentage point to 0.33%.