Bank NPL Ratio Rises to 0.63% in June... Warning Signs for Corporate and Self-Employed Borrower Asset Quality

7.2 Trillion Won in New NPLs in Q2…
SMEs See Sharp 1.2 Trillion Won Increase

"Rising NPLs in Vulnerable Sectors…
Preemptive Asset Management Needed Ahead of Rate Hikes"

As of the end of June this year, the non-performing loan (NPL) ratio of domestic banks has increased. With defaults rising among corporations and individual business owners, concerns are mounting that the risk associated with vulnerable borrowers due to potential future interest rate hikes could spread and become a burden on banks’ financial soundness.

According to the Financial Supervisory Service’s announcement on September 2 regarding the “Status of Non-Performing Loans at Domestic Banks as of the End of June (Preliminary),” the NPL ratio at domestic banks stood at 0.63%. This marked an increase of 0.03 percentage points from the previous quarter-end and a rise of 0.04 percentage points year-on-year.

The total amount of non-performing loans reached 18.9 trillion won, up by 1.2 trillion won from the previous quarter. Of this, corporate loans accounted for 15.2 trillion won, household loans 3.4 trillion won, and credit card receivables 300 billion won. Non-performing loans refer to loans for which a financial institution has not collected principal or interest for more than three months, making the likelihood of recovery low.

The balance of loan loss provisions stood at 26.9 trillion won, up 200 billion won from the previous quarter. However, the loan loss provision coverage ratio was 142.9%, down 7.5 percentage points from the previous quarter and 22.6 percentage points year-on-year.

New non-performing loans generated in the second quarter amounted to 7.2 trillion won, an increase of 1.7 trillion won compared to the previous quarter. Among these, new non-performing corporate loans stood at 5.7 trillion won, up 1.6 trillion won. Within this category, large corporations contributed 400 billion won to the increase, while small- and medium-sized enterprises (SMEs) accounted for 1.2 trillion won. Newly generated non-performing household loans also rose by 100 billion won to 1.4 trillion won.

The amount of non-performing loans resolved during the same period was 6.1 trillion won, up by 1.7 trillion won from the previous quarter. Among these, sales and write-offs amounted to 3.9 trillion won, recoveries through collateral disposal were 1.2 trillion won, and normalization of loans was 800 billion won.

The soundness of loans to corporations and self-employed individuals deteriorated. The non-performing loan ratio for corporate loans was 0.77%, up 0.03 percentage points from the previous quarter-end and 0.05 percentage points year-on-year. In particular, compared to a year ago, the increase was most pronounced among large corporations and individual business owners. Even within corporate lending, the NPL ratio for loans to large corporations rose to 0.53%, an increase of 0.12 percentage points year-on-year. The ratio for SMEs was 0.92%, and for individual business owners, 0.67%, up by 0.02 and 0.08 percentage points, respectively. The NPL ratio for household loans was 0.33%, each up by 0.01 percentage points both quarter-on-quarter and year-on-year.

The Financial Supervisory Service assessed that, given banks’ current profitability and capital adequacy, their overall loss-absorbing capacity remains sound.

However, a spokesperson for the Financial Supervisory Service said, “With the NPL ratio continuing to rise, particularly in certain vulnerable sectors, it is necessary to take preemptive measures to manage bank soundness in light of the prolonged situation in the Middle East and the possibility of rising interest rates at home and abroad.” The spokesperson added, “We plan to encourage banks to actively conduct write-offs and sales of non-performing loans, as well as to strengthen their capacity to absorb losses.”

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