Bank NPLs Near 19 Trillion Won, Highest in 8 Years... Alarms Over Corporate and Self-Employed Loan Soundness

NPL Ratio Hits 0.63% in June, Highest in Five and a Half Years
Rising Interest Rates Increase Debt Burden on Vulnerable Borrowers
Concerns Mount over Banks’ Financial Soundness

The volume of non-performing loans (NPLs) held by domestic banks has surged to nearly 19 trillion won, reaching its highest level in eight years. The non-performing loan ratio also hit a five-and-a-half-year high. As defaults are increasing among corporates and sole proprietors, concerns are mounting that risks faced by vulnerable borrowers in the event of future interest rate hikes could pose a threat to the soundness of banks.

According to the "Status of Non-Performing Loans at Domestic Banks as of End-June (Provisional)," released by the Financial Supervisory Service on September 2, 2026, the total amount of NPLs held by domestic banks came to 18.9 trillion won, up 1.2 trillion won from the end of March. This is the largest amount since June 2018, when the figure was 19.4 trillion won, marking an eight-year high.

Non-performing loans refer to credit assets that a financial institution has not been able to recover principal or interest on for more than three months, reducing the likelihood of collection. Of the total NPLs, corporate loans accounted for the vast majority at 15.2 trillion won, followed by household loans at 3.4 trillion won and credit card receivables at 300 billion won.

New non-performing loans have also been increasing rapidly. In the second quarter, newly generated NPLs amounted to 7.2 trillion won, up 1.7 trillion won from the previous quarter. New NPLs from corporate loans increased by 1.6 trillion won to 5.7 trillion won, while new household NPLs also rose by 100 billion won to reach 1.4 trillion won.

Although banks accelerated the disposal of NPLs, they could not keep up with the pace of new non-performing loans. In the second quarter, the volume of resolved NPLs rose by 1.7 trillion won from the previous quarter to 6.1 trillion won, but this still fell short of the 7.2 trillion won in new NPLs.

While the amount set aside as loan-loss provisions to cover possible defaults increased, banks' overall buffer capacity weakened. As of the end of June 2026, the balance of loan-loss provisions stood at 26.9 trillion won, up 200 billion won from end-March. However, the provision coverage ratio fell to 142.9%, down 7.5 percentage points from March and 22.6 percentage points from a year earlier.

The NPL ratio also rose to 0.63%, up 0.03 percentage points from the end of March and 0.04 percentage points from a year ago. This is the highest level since December 2020, when it reached 0.65%--a five-and-a-half-year high.

The deterioration in asset quality was particularly marked in corporate and sole proprietorship loans. The NPL ratio for corporate loans increased to 0.77%, up 0.03 percentage points from end-March and 0.05 percentage points from a year earlier. Compared with a year ago, large corporations and sole proprietors saw greater increases. Among corporate loans, the NPL ratio for large firms jumped by 0.12 percentage points year-on-year to 0.53%. For small and medium-sized companies, the ratio rose by 0.02 percentage points to 0.92%, while for sole proprietors it climbed by 0.08 percentage points to 0.67%. The NPL ratio for household loans was 0.33%, up 0.01 percentage points from both the previous quarter and a year earlier.

A Financial Supervisory Service official stated, "Given the continued rise in NPL ratios in certain vulnerable sectors, it is essential to preemptively manage soundness in response to prolonged instability in the Middle East and the possibility of rising interest rates both domestically and internationally." The official added, "We will continue to encourage banks to actively dispose of or sell NPLs and to further build their loss-absorption capacity."

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