April Bank Loan Delinquency Rate Rises to 0.61%...Upturn in Just One Month Due to SME Loan Deterioration

Increase in New Delinquencies and Decrease in Resolved Delinquent Loans

SME Corporate Delinquency Rate Nears 1%... Rise Among Individual Business Owners

Banks Encouraged to Implement Their Own Debt Restructuring for Vulnerable Borrowers at R

In April, the delinquency rate on domestic bank loans in South Korea resumed its upward trend after just one month. This increase was largely driven by higher delinquency rates on loans to small and medium-sized enterprises (SMEs) and individual business owners. Analysts attribute the deterioration in loan quality, particularly among vulnerable borrowers, to the combined effects of an economic slowdown and the burden of high interest rates.

According to the Financial Supervisory Service’s announcement on June 18, the “Delinquency Rate for Won-Denominated Loans at Domestic Banks as of End-April 2026 (Provisional)” stood at 0.61% at the end of April, up 0.05 percentage points from the end of the previous month (0.56%). This is the highest level for April since 2016 (0.64%), and it is also 0.04 percentage points higher than the same period last year (0.57%).

This trend is believed to be the result of an increase in new delinquencies and a decrease in the amount of resolved delinquent loans. In April, the value of new delinquencies increased by 200 billion won compared to the previous month, while the amount of resolved delinquent loans fell by 2.7 trillion won.

Typically, banks reduce their delinquency rates at the end of each quarter by selling or writing off large volumes of delinquent loans, after which the rates tend to rise again the following month. In fact, this year, the delinquency rate rose to 0.62% in February, dropped to 0.56% in March, and then climbed again in April.

The increase in the delinquency rate was particularly prominent in the corporate loan sector. The delinquency rate for corporate loans rose to 0.74%, up 0.06 percentage points from the previous month (0.68%). This was especially notable for loans to SMEs, where the delinquency rate climbed to 0.90%, an increase of 0.09 percentage points from the previous month. The delinquency rate for SME corporations reached 0.98%, nearing the 1% range. This suggests that ongoing economic slowdown and sluggish domestic demand are worsening the financial conditions for SMEs. The delinquency rate for individual business owner loans also increased by 0.07 percentage points from the previous month, reaching 0.78%.

In contrast, the delinquency rate for large corporate loans remained unchanged from the previous month at 0.22%. However, compared to the same month last year, the rate saw a slight increase, indicating that companies’ financial conditions have not yet fully improved.

The delinquency rate for household loans rose 0.02 percentage points from the previous month to 0.42%. While the delinquency rate for mortgage loans remained relatively stable at 0.30%, the rate for non-mortgage household loans, such as unsecured credit loans, increased by 0.07 percentage points to 0.83%. The rise in delinquencies was particularly notable among unsecured loans, exacerbating the financial burden for vulnerable borrowers. Given the sharp increase in credit loans in May, there are growing concerns that managing the soundness of household loans may become more challenging in the future.

The financial industry believes that the recent combination of high oil prices and exchange rate pressures caused by instability in the Middle East, alongside the delay in economic recovery, has prevented vulnerable borrowers from improving their debt repayment capacity. In particular, self-employed individuals and SMEs are facing heightened concerns over financial soundness as they contend with sluggish domestic demand and the burden of financial costs.

The Financial Supervisory Service stated, “Amid continuing high inflation and high exchange rates, domestic and external economic uncertainties persist, such as the rise in market interest rates. We plan to strengthen our monitoring of delinquency rates and new delinquency trends, and encourage banks to enhance their loss-absorbing capacity by expanding loan loss provisions.”

The agency added, “For vulnerable borrowers at risk of delinquency, we will guide banks to provide proactive support through their own debt restructuring programs.”

This content was produced with the assistance of AI translation services.