[Exclusive] Loans Top KRW 5 Trillion, but Defaults Come at a Cost... NPLs 9 Times 2021 Levels [The Dark Side of K-Finance for Foreigners] Part 1

Foreigner lending grew 1.42-fold

while non-performing loans surged 8.7-fold

Doubtful and estimated loss loans account for 68.8%

Bad loans are mounting, particularly at regional banks

Editor's NoteAs the number of foreign nationals staying in Korea long term grows, banks are competing fiercely to attract them as a new source of growth. In May, we examined the race among banks to gain an early foothold and the kinds of financial services foreign nationals actually want in our series, "The State of K-Finance for Foreigners." This time, we take a look at the "dark side" hidden behind the impressive growth in scale. Over five installments, we will examine the deterioration in the foreigner loan market, which has surged in a short period, its structural causes, and possible solutions.

The foreigner loan market has grown rapidly since domestic banks began offering credit loans to foreign nationals, and loan defaults have surged. Non-performing loans have nearly tripled in just 18 months, approaching KRW 50 billion. As banks compete fiercely to attract foreign customers as a new source of revenue, their rapid expansion of lending is also increasing the burden on asset quality.

An investigation by the office of Choi Eunseok of the People Power Party, a member of the National Assembly's Political Affairs Committee, into foreigner lending by banks, based on data from the Financial Supervisory Service and the Korea Credit Information Services, found that the outstanding balance of loans to foreign nationals at 16 domestic banks stood at KRW 5.1784 trillion as of the end of June this year. According to the classification criteria in the office's data, the banks surveyed comprised five commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup), six regional banks (iM Bank, Jeonbuk Bank, Kwangju Bank, Busan Bank, Kyongnam Bank, and Jeju Bank), three special-purpose banks (Korea Development Bank, IBK Industrial Bank of Korea, and Suhyup Bank), and two foreign banks (Standard Chartered First Bank Korea and Citi).

Bank lending to foreign nationals has grown rapidly since 2023. The outstanding balance, which stood at KRW 3.6532 trillion in 2021, surpassed KRW 4 trillion in 2023 at KRW 4.1466 trillion, and topped KRW 5 trillion last year at KRW 5.1283 trillion. From the end of 2023 to the end of last year, lending increased by about KRW 500 billion annually on average, rapidly expanding the market.

The problem is that defaults are surging as the loan market grows in a short period. Non-performing loans are increasing faster than lending. The banking sector's non-performing loans (NPLs) totaled KRW 46.724 billion at the end of June this year, up KRW 16.022 billion, or 52.2%, from KRW 30.7202 billion at the end of last year.

NPLs stood at around KRW 5.4 billion as recently as 2021, but had grown to KRW 15.6 billion in 2024 and nearly doubled the following year. NPLs accumulated rapidly in the first half of this year, with the increase exceeding the full-year increase last year of KRW 15.094 billion. Compared with 2021, total loans grew by about 1.42 times, while NPLs increased by about 8.7 times. The NPL ratio, measured against the outstanding balance of loans, also rose from 0.15% to 0.9% over the same period. This is above the banking sector's NPL ratio of 0.63% at the end of June this year, as reported by the Financial Supervisory Service.

The quality of NPLs is also deteriorating. Among the categories that make up NPLs—fixed, doubtful, and estimated-loss loans—the share of doubtful and estimated-loss loans, which have a low likelihood of recovery, has been growing.

Doubtful loans classified as NPLs totaled KRW 24.884 billion at the end of June this year. They stood at around KRW 1.446 billion in 2021, rose to KRW 5.39 billion in 2024, and then climbed sharply to KRW 16.79 billion last year. Their share of total NPLs also increased from 27.0% in 2021 to 53.3% at the end of June this year.

Estimated-loss loans totaled just KRW 303 million in 2021, but had grown to KRW 7.253 billion by the end of June this year. Their share of NPLs also rose from 5.7% to 15.5% over the same period. The share of fixed loans—the NPL category with the greatest prospect of recovery—fell from 67.3% (KRW 3.601 billion) to 31.2% (KRW 14.587 billion).

The number of foreign nationals who have become credit delinquents is also rising. According to the Korea Credit Information Services, the number of foreign nationals in default on their debts increased nearly fourfold, from 1,116 at the end of 2021 to 4,496 at the end of June this year. Of these, 387 borrowed from commercial banks and 4,109 from regional banks, with the number of foreign borrowers unable to repay their debts as agreed rising particularly at regional banks.

Assemblyman Choi said, "We should take seriously the fact that non-performing loans are increasing faster than lending to foreign nationals. It is time to systematically review the status of related defaults."

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