Boss’s Debt Crisis Boosts Bank Loan Delinquency
- Loan delinquency rates at domestic banks have surged to their highest level in six years and three months, raising concerns about the financial health of small and medium-sized...
- According to data released by the Financial Supervisory Service (FSS) on Tuesday, the loan delinquency rate for domestic banks stood at 0.58% at the end of February.
- While new delinquencies amounted to ₩2.9 trillion in February, a decrease of ₩300 billion from the previous month, the overall delinquency rate continued to climb. The amount of...
Domestic Bank loan Delinquency Rate Hits Over Six-Year High
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Loan delinquency rates at domestic banks have surged to their highest level in six years and three months, raising concerns about the financial health of small and medium-sized enterprises (SMEs) and private businesses, frequently enough considered vulnerable sectors of the economy due to persistent sluggish domestic demand.
Delinquency Rate Reaches 0.58% in February
According to data released by the Financial Supervisory Service (FSS) on Tuesday, the loan delinquency rate for domestic banks stood at 0.58% at the end of February. This represents a 0.05 percentage point increase from the previous month and the highest rate as November 2018,when it reached 0.6%.
While new delinquencies amounted to ₩2.9 trillion in February, a decrease of ₩300 billion from the previous month, the overall delinquency rate continued to climb. The amount of delinquent bonds also saw a slight increase of ₩80 billion compared to January, failing to offset the rising delinquency trend.
SMEs and self-Employed Face Increased Financial Strain
The delinquency rate is notably pronounced among SMEs and self-employed individuals, who often operate with smaller profit margins.While the household loan delinquency rate remained stable at 0.43%, the corporate loan delinquency rate rose to 0.68%, marking a 0.07 percentage point increase from the previous month’s 0.61%.
Specifically, the delinquency rate for SMEs, including private businesses, reached 0.84%, a 0.07 percentage point increase. Small and medium-sized subsidiaries experienced the most notable rise, with a delinquency rate of 0.9%, up 0.08 percentage points from 0.82% the previous month. The delinquency rate for private operators also increased, reaching 0.76%, a 0.06 percentage point rise.
Large Corporations Show Lower Delinquency, but Rate Increases
In contrast, large corporations maintained a relatively low delinquency rate of 0.1% in February. Though, even this sector saw an increase of 0.5 percentage points compared to the previous month, signaling a potential broader trend.
FSS Attributing Factors to Economic Conditions
An FSS official stated that the increase in the overall delinquency rate is primarily attributed to the rising delinquencies among SMEs and private businesses, despite a decrease in new delinquencies and an increase in the size of write-offs.
The significant increase in delinquency rates for SMEs and private business loans is largely attributed to the ongoing sluggish economic conditions. Prolonged weak domestic demand has strained the finances of these businesses, leading to increased debt burdens. The expiration of financial support measures implemented during the COVID-19 pandemic has also contributed to the rise in delinquency rates.
According to the FSS official,”The COVID-19 financial support program has already ended,and the debt burden appears to be intensifying after the extension of maturity or interest payment grace periods.”
Potential for Further increases and Impact on Lending
Concerns are growing that the delinquency rate could further increase among SMEs and the self-employed, particularly if tariff increases take full effect. This could lead to concerns about the financial soundness of these businesses and possibly trigger a “double whammy” effect, making it more tough for low-credit borrowers to access loans.
Park Hye-jin, a researcher at Daishin Securities, noted that “Earlier this year, the delinquency rate of banks, driven by SMEs and private businesses, is not unexpected.”
FSS response and Outlook
Despite the rising delinquency rates, the FSS official stated, “It is indeed not yet a situation to worry about soundness as banks have sufficient capacity to raise capital.”
The FSS plans to ensure that banks maintain sufficient loss absorption capacity to prepare for potential credit risk expansion. The agency will also focus on strengthening asset health management by actively selling off delinquent and non-performing loans.
Domestic Bank Loan Delinquency rates: What you Need to Know
What is a loan delinquency rate?
A loan delinquency rate measures the percentage of borrowers who are behind on their loan payments. It’s an vital indicator of financial health, both for individual banks and the overall economy.
What’s the current situation with domestic bank loan delinquency rates?
According to recent data, loan delinquency rates at domestic banks have reached a six-year and three-month high. This indicates increased financial strain on borrowers, especially small and medium-sized enterprises (SMEs) and self-employed individuals.
What was the delinquency rate in Febuary?
In February, the loan delinquency rate for domestic banks stood at 0.58%.This is a 0.05 percentage point increase from the previous month and the highest as November 2018, when it reached 0.6%.
What sectors are most affected by rising delinquency rates?
SMEs and self-employed individuals are experiencing the most significant increase in delinquency rates.
how do different sectors compare in terms of delinquency rates?
Here’s a breakdown of delinquency rates across different sectors, based on the data: