Bank Loan Delinquency Rate Rises Again in July

The delinquency rate for bank loans, which had been slightly declining, turned upward again in July. As the delinquency rate for both corporate and household loans increased, the supervisory authorities once again emphasized the importance of managing the soundness of banks’ assets.

The Financial Supervisory Service announced the ‘Status of Default Rates on Won-denominated Loans by Domestic Banks as of the End of July 2024 (Provisional)’ on the 20th. According to this, the default rate on won-denominated loans by domestic banks (based on overdue principal and interest for more than one month) as of the end of July this year was 0.47%, up 0.05%p from the end of the previous month.

The amount of new delinquent loans in July (KRW 2.7 trillion) increased by KRW 400 billion from the previous month (KRW 2.3 trillion), and the amount of delinquent loans settled (KRW 1.5 trillion) decreased by KRW 2.9 trillion from the previous month (KRW 4.4 trillion). The new delinquency rate was 0.12%, up 0.02 percentage points from the previous month (0.10%).

Delinquency Rate by Sector

By sector, the corporate loan delinquency rate (0.53%) increased by 0.07%p compared to the end of the previous month. The large corporation loan delinquency rate (0.05%) increased by 0.01%p compared to the end of the previous month, and the small and medium-sized enterprise loan delinquency rate (0.67%) increased by 0.09%p compared to the end of the previous month.

In particular, the small and medium-sized corporation delinquency rate (0.71%) increased by 0.13%p compared to the end of the previous month, and the individual business loan delinquency rate (0.61%) increased by 0.04%p compared to the end of the previous month.

Household Loan Delinquency Rate

The delinquency rate for household loans (0.38%) rose 0.02 percentage points from the end of the previous month. The delinquency rate for housing mortgage loans (0.25%) rose 0.01 percentage points from the end of the previous month, and the delinquency rate for household loans (credit loans, etc.) excluding housing mortgage loans (0.76%) rose 0.05 percentage points from the end of the previous month.

The Financial Supervisory Service diagnosed that “although the delinquency rate is rising, especially among vulnerable borrowers such as small and medium-sized enterprises, it is still low compared to the long-term average before the COVID-19 pandemic,” but added that “since the second half of last year, the new delinquency rate has remained high compared to previous years, so we need to prepare for the possibility that the delinquency rate will continue to rise in the future.”

The Financial Supervisory Service plans to encourage banks to strengthen asset soundness management through measures such as setting aside bad debt reserves and reorganizing overdue receivables, while also encouraging them to support the alleviation of borrowers’ debt burdens through measures such as activating self-debt adjustment for vulnerable borrowers.