Delinquency Rates on Corporate Loans Rise Simultaneously at Insurers, Savings Banks, and Mutual Credit Unions... Asset Quality Management Under Red Alert (Comprehensive)

Corporate Loan Delinquency Rate at Insurance Companies Rises by 0.41 Percentage Points

Savings Banks See 0.38 Percentage Point Increase Compared to End of Last Year

Recently, asset quality management burdens have grown for insurance companies, savings banks, and mutual finance cooperatives, as delinquency rates have risen—particularly for corporate loans. Although savings banks and mutual finance institutions saw significant growth in net profit in the first half of the year, concerns over corporate loan defaults are growing due to the delayed economic recovery, construction and real estate sector insolvency, and rising interest rates.

According to operational and loan status data for insurance companies, savings banks, and mutual finance cooperatives released by the Financial Supervisory Service on August 28, the delinquency rate for insurance company loan receivables stood at 1.08% at the end of June this year, up 0.26 percentage points from the previous quarter. This is the first time the rate has exceeded the 1% mark since September 2011 (1.18%), marking a 14-year and 9-month high.

The outstanding balance of insurance company loan receivables reached 266 trillion won as of the end of the quarter, up 1.9 trillion won from the previous quarter. Household loans totaled 136.1 trillion won, while corporate loans stood at 129.8 trillion won, increasing by 1.6 trillion won and 300 billion won, respectively.

The rise in the delinquency rate was led by corporate loans. The delinquency rate for corporate loans hit 1.21%, rising by 0.41 percentage points from the previous quarter, while the household loan delinquency rate dropped by 0.04 percentage points to 0.83%. The non-performing loans ratio also rose by 0.18 percentage points to 1.31% compared to the previous quarter.

Despite improved earnings, savings banks also experienced higher delinquency rates for corporate loans. Net income for the first half of this year was 765.8 billion won, a 198% increase from the same period last year, driven by securities-related income gains and reduced credit loss expenses.

However, at the end of June, the overall delinquency rate for savings banks climbed to 6.26%, up 0.22 percentage points from the end of last year. The delinquency rate for corporate loans increased by 0.38 percentage points to 8.38% from 8.00%, whereas the household loan delinquency rate decreased slightly from 4.67% to 4.60%. The non-performing loans ratio fell by 0.27 percentage points to 8.16% over the same period.

Mutual finance cooperatives—including credit unions, agricultural cooperatives, fisheries cooperatives, and forestry cooperatives—also recorded net profit of 714.1 billion won in the first half, a 71.0% increase year-on-year. Increased net interest income, particularly in the credit business division, contributed to this boost in net profit.

On the other hand, asset quality deteriorated. As of the end of June, the delinquency rate at mutual finance institutions was 5.39%, up 0.77 percentage points from the end of last year. Corporate loan delinquency rates surged by 1.20 percentage points to 8.03% from 6.83%. The household loan delinquency rate also rose, going from 1.93% to 2.21%. The non-performing loans ratio increased by 0.51 percentage points from 5.55% to 6.06%.

While standards and figures differ among sectors, a common trend can be seen: insurance companies, savings banks, and mutual finance institutions are all facing increased delinquency risks, mainly stemming from corporate loans. Delays in economic recovery, insolvency within the construction and real estate sectors, and both domestic and external economic uncertainties are analyzed as factors weakening the repayment ability of corporate borrowers.

The Financial Supervisory Service plans to guide insurance companies to sufficiently strengthen their loss-absorbing capacity and tighten asset quality management in preparation for further rises in delinquency rates. For savings banks and mutual finance institutions, the regulator will also encourage the resolution of non-performing assets through auctions and voluntary sales, sufficient provisioning for bad debts, and additional capital strengthening.

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