The delinquency rate for domestic banks' won-denominated loans reached its highest level in a decade as of June. Although the rate decreased from the previous month due to a large-scale cleanup of delinquent loans at the end of the quarter, the corporate loan delinquency rate has risen compared to a year ago. As the government promotes productive finance to expand funding for businesses and advanced industries, the importance of managing the soundness of corporate loans is increasing.
According to the Financial Supervisory Service on August 21, the delinquency rate for won-denominated loans at domestic banks was 0.56% at the end of June, down 0.11 percentage points from the end of the previous month. However, this is an increase of 0.04 percentage points compared to the same month last year. This marks the highest level for June since 0.71% in June 2016.
The decline in the delinquency rate from the previous month was significantly influenced by the end-of-quarter effect. Banks sold off 5.3 trillion won worth of delinquent loans in June, an increase of 3.8 trillion won from the previous month’s 1.5 trillion won. The amount of new delinquencies also decreased from 3.3 trillion won to 2.6 trillion won.
By sector, the trends in corporate and household loans diverged. The corporate loan delinquency rate fell to 0.68%, down 0.16 percentage points from the previous month, but it rose by 0.08 percentage points compared to the same month last year. In contrast, the household loan delinquency rate decreased to 0.40%, down 0.05 percentage points from the previous month and 0.01 percentage points from the same month last year. Consequently, the gap between the delinquency rates for corporate and household loans widened to 0.28 percentage points, up from 0.10 percentage points in June 2024.
Among corporate loans, the burden of soundness is particularly evident for small businesses. The delinquency rate for small businesses rose to 0.92%, up 0.13 percentage points from 0.79% in June last year. During the same period, the delinquency rate for individual business loans increased from 0.66% to 0.69%, a rise of 0.03 percentage points. The delinquency rates for large corporations and small businesses also increased by 0.08 percentage points each, reaching 0.22% and 0.82%, respectively.
As the corporate loan delinquency rate rises compared to last year, simply increasing the supply of loans could also heighten banks' credit assessment and provisioning burdens. There are calls for risk-sharing measures through policy finance and guarantees to expand funding for relatively lower-credit small and innovative enterprises.
The pace of new delinquencies has somewhat stabilized. The new delinquency rate in June was 0.10%, down 0.03 percentage points from the previous month and 0.01 percentage points from the same month last year. Additionally, household loans, including mortgage and credit loans, showed improvement compared to the previous year. The delinquency rate for mortgage loans was 0.28%, down 0.02 percentage points from the same month last year. The delinquency rate for credit loans, excluding mortgages, also decreased to 0.77%, down 0.01 percentage points during the same period.
* This article has been translated by AI.
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