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, as delinquency rates have risen in corporate loans at insurance companies, savings banks, and mutual credit unions, the burden of managing asset quality has increased. Although savings banks and mutual credit unions saw significant growth in net profits during the first half of the year, concerns about potential corporate loan defaults are rising due to the delayed economic recovery, bad debts related to construction and real estate, and rising interest rates.

According to the operational and loan status of insurance companies, savings banks, and mutual credit unions announced by the Financial Supervisory Service on August 28, insurance companies recorded a delinquency rate of 1.08% on loan receivables as of the end of June this year, up by 0.26 percentage points from the previous quarter. This marks the first time in 14 years and 9 months since September 2011 (1.18%) that the delinquency rate has risen to above 1%.

The outstanding loan balance of insurance companies stood at 266 trillion won, up 1.9 trillion won from the previous quarter. Household loans amounted to 136.1 trillion won, while corporate loans totaled 129.8 trillion won—an increase of 1.6 trillion won and 300 billion won, respectively.

The rise in delinquency rates was driven mainly by corporate loans. The corporate loan delinquency rate was 1.21%, up by 0.41 percentage points from the previous quarter, while the household loan delinquency rate fell by 0.04 percentage points to 0.83%. The ratio of substandard and below loans also increased to 1.31%, up by 0.18 percentage points from the previous quarter.

Savings banks, despite improved performance, also saw a rise in corporate loan delinquency rates. Net profit for the first half of this year reached 765.8 billion won, a 198% increase compared to the same period last year. The improvement in earnings was driven by higher profits from securities and reduced credit loss expenses.

However, as of the end of June, the delinquency rate at savings banks stood at 6.26%, up by 0.22 percentage points from the end of last year. The corporate loan delinquency rate rose from 8.00% to 8.38%, an increase of 0.38 percentage points, while the household loan delinquency rate fell from 4.67% to 4.60%. The ratio of substandard and below loans dropped by 0.27 percentage points to 8.16% from the end of last year.

Mutual credit unions, including credit unions, agricultural cooperatives, fisheries cooperatives, and forestry cooperatives, also saw net profit for the first half increase by 71.0% year-on-year to 714.1 billion won. This was due to increased net interest income and improved credit business results.

On the other hand, asset quality worsened. As of the end of June, the delinquency rate in mutual credit finance was 5.39%, up by 0.77 percentage points from the end of last year. In particular, the corporate loan delinquency rate jumped by 1.20 percentage points, from 6.83% to 8.03%. The household loan delinquency rate also increased from 1.93% to 2.21%. Likewise, the ratio of substandard and below loans rose from 5.55% to 6.06%, an increase of 0.51 percentage points.

Although measurement standards and figures differ by sector, insurance companies, savings banks, and mutual credit unions all face a growing burden of delinquencies, especially in corporate lending. The delayed economic recovery, bad debts related to construction and real estate, and both domestic and international economic uncertainties are independently weighing on the repayment capacity of corporate borrowers.

The Financial Supervisory Service plans to instruct insurance companies to sufficiently strengthen their loss absorption capacity and enhance asset quality management in response to rising delinquency rates. For savings banks and mutual credit unions, the regulator plans to encourage the disposal of non-performing assets through auctions and voluntary sales, adequate provisioning for loan losses, and capital reinforcement.

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