Domestic Bank Insolvency Bonds: 15 Trillion Won, 80% of Corporate Loans
South Korean Banks Grapple with Rising Non-Performing Loans
SEOUL, South Korea (April 14, 2025) – south Korean banks are facing increasing pressure from a growing volume of non-performing loans (NPLs), raising concerns about asset quality and potential financial instability.The rise in npls, notably in the corporate credit sector, highlights structural risks within the nation’s financial system.
Domestic Banks see Surge in Bad Debt
According to a recent report by Samjong KPMG, titled ‘NPL Market Trends and Outlook,’ domestic banks held an estimated 14.5 trillion won in NPLs as of September 2024, excluding credit card divisions. This represents a significant increase of 4.4 trillion won from the 10 trillion won recorded at the end of 2022.
Corporate credit debt has been a major driver of this increase, surging by approximately 30% year-over-year to reach 11.7 trillion won. This contrasts sharply with household debt, which saw a 13% increase over the same period, totaling 2.6 trillion won.
Delinquency Rates on the Rise
The overall delinquency rate for domestic banks stood at 0.44% at the close of the fourth quarter of 2024, a 0.06 percentage point increase compared to the previous year. Internet banks reported the highest delinquency rate at 0.67%, followed by special banks at 0.61%.
General banks also experienced a rise in fixed-rate delinquencies, reaching 0.35% in the third quarter of 2024. This metric has been steadily climbing since the third quarter of 2022,when it stood at 0.23%. The volume of newly registered bad debts also increased, from 2.3 trillion won to 3 trillion won during the same period.
Banks Increase NPL Sales
In response to these challenges, Samjong KPMG analysts noted that domestic banks have been actively selling off bad debts as 2023 to bolster asset soundness.In 2024, NPL sales reached a record high of 8.3 trillion won.
Non-Bank Financial Institutions Face Greater Challenges
The soundness of non-bank financial institutions, including insurance companies, securities firms, and card companies, has deteriorated at a faster pace than that of banks. As of September 2024, the household loan delinquency rate for these institutions was 2.18%. Other loans (2.73%) showed a higher delinquency rate than mortgage loans (1.1%). Corporate loan delinquency rates were particularly concerning, reaching 6.4%, a 2.17 percentage point increase from the 4.23% recorded the previous year.
NPL Market dominated by Specialists
The NPL sale market is largely controlled by specialized firms such as Yonhap Asset Management, Institute for F & I, Kiwoom F & I, Woori Financial F & I, and hana F & I. As 2019, these specialists have accounted for more than 90% of the market.
Outlook for 2025
Looking ahead, the NPL market is expected to expand due to ongoing economic uncertainty, including concerns about the global economic recovery and potential protectionist measures. The supply of NPLs is anticipated to increase in the non-banking sector, driven by domestic economic indicators, slowing exports, high household debt, and risks associated with real estate project financing (PF).
South Korean Banks and the rising Tide of Non-Performing Loans (NPLs)
This article explores the growing issue of non-performing loans (NPLs) within the South Korean banking system. It analyzes the recent surge in bad debt, focusing on both domestic banks and non-bank financial institutions, and provides an outlook for the NPL market in 2025. The data is drawn from a Samjong KPMG report, outlining key trends and challenges.
What are Non-Performing Loans (NPLs)?
non-performing loans (NPLs) are loans that are in default or close to default, meaning borrowers are unable to make their scheduled payments. A rising volume of NPLs can indicate financial instability and asset quality concerns within a financial system.
why are NPLs Increasing in South Korea?
The rise in NPLs in South Korea is primarily driven by increasing economic uncertainty, including concerns about global economic recovery and potential protectionist measures.The corporate credit sector has been particularly affected. Other factors include:
- Slowing exports.
- High household debt.
- Risks associated with real estate project financing (PF).
How Bad is the Situation for Domestic Banks?
Domestic banks are experiencing a notable surge in bad debt. As of September 2024, they held an estimated 14.5 trillion won in NPLs, excluding credit card divisions. This marks a significant increase compared to the 10 trillion won recorded at the end of 2022.
What is the Main Driver of Increased NPLs?
Corporate credit debt is a major driver. It surged by approximately 30% year-over-year to reach 11.7 trillion won. In contrast,household debt increased by 13% over the same period,totaling 2.6 trillion won.
What are the Delinquency Rates for south Korean Banks?
The overall delinquency rate for domestic banks stood at 0.44% at the end of the fourth quarter of 2024. This represents a 0.06 percentage point increase compared to the previous year.
Wich Banks Have the Highest delinquency Rates?
Internet banks reported the highest delinquency rate at 0.67%, followed by special banks at 0.61%.
Are Fixed-Rate Delinquencies Increasing?
Yes, general banks saw a rise in fixed-rate delinquencies, reaching 0.35% in the third quarter of 2024. This has been steadily climbing as the third quarter of 2022, where it was 0.23%. The volume of newly registered bad debts has also increased.
How are Banks Responding to the Surge in NPLs?
Domestic banks have been actively selling off bad debts to bolster asset soundness. NPL sales in 2024 reached a record high of 8.3 trillion won, according to the report.
How are Non-Bank Financial Institutions Faring?
Non-bank financial institutions, including insurance companies, securities firms, and card companies, are facing greater challenges. Their soundness has deteriorated at a faster pace than that of banks.As of September 2024, the household loan delinquency rate for these institutions was 2.18%, with other loans and corporate loans showing higher delinquency rates.
What are the Key Delinquency Rates in the Non-Banking Sector?
The non-banking sector displays various rates,summarized below in a concise format:| Loan Type | Delinquency Rate (September 2024) |
|---|---|
| Household Loans | 2.18% |
| Other Loans | 2.73% |
| Corporate Loans | 6.4% |
Who Dominates the NPL Market?
The NPL sale market is dominated by specialized firms. Key players include Yonhap Asset Management, Institute for F & I, Kiwoom F & I, Woori Financial F & I, and hana F & I. These specialists have controlled more than 90% of the market since 2019.
What is the Outlook for the South Korean NPL Market in 2025?
The NPL market is expected to expand due to ongoing economic uncertainty and domestic economic indicators. This expansion is particularly anticipated within the non-banking sector.
What are the Major Concerns?
The main concerns are linked to the global economic recovery, potential protectionist measures, slowing exports, high household debt, and risks associated with real estate project financing (PF).