At the end of August, the delinquency rate for won-denominated loans at domestic banks rose by 0.06 percentage points from the previous month, reaching 0.53%, the highest in 69 months. According to a report released by the Financial Supervisory Service on the status of domestic banks’ won loan delinquency rates as of the end of August 2024, the delinquency rate increased by 0.10 percentage points compared to the same period last year, when it was 0.43%.
Since the end of the COVID-19 pandemic, the delinquency rate has been gradually rising. It had fallen to 0.20% in June 2022 but has continued to increase, reaching its highest level since November 2018, when it was 0.60%. The increase in delinquent loans is attributed to the effects of high interest rates and economic recession.
In August, the amount of new delinquencies reached 3 trillion won, an increase of 300 billion won from the previous month. The amount of resolved delinquent loans was 1.4 trillion won, a decrease of 100 billion won from the previous month. The new delinquency rate rose by 0.01 percentage points to 0.13% from the previous month.
By sector, except for large corporate loans, delinquency rates increased across all areas. At the end of August, the corporate loan delinquency rate rose by 0.09 percentage points to 0.62% from the previous month. The delinquency rate for large corporate loans remained unchanged at 0.05%, while the delinquency rate for small and medium-sized enterprises (SMEs) increased by 0.11 percentage points to 0.78% from the previous month. Within SME loans, the delinquency rate for small corporate loans rose by 0.13 percentage points to 0.84% from the previous month, and the delinquency rate for self-employed loans increased by 0.09 percentage points to 0.70%.
The household loan delinquency rate increased by 0.02 percentage points to 0.40% from the previous month. Among household loans, the delinquency rate for home mortgage loans rose by 0.01 percentage points to 0.26% from the previous month, and the delinquency rate for household loans excluding mortgages, such as credit loans, increased by 0.06 percentage points to 0.82%.
The financial authorities stated that, compared to the average domestic bank delinquency rate of 0.78% over the 10 years prior to COVID-19, the current delinquency rate is not at a level of serious concern. The Financial Supervisory Service noted that the rate is still lower than the pre-pandemic long-term average, and domestic banks’ loss absorption capacity has significantly improved compared to the past, keeping it at a manageable level.
They also noted that, although the reduction in the base interest rate could alleviate borrowers’ repayment burdens, the new delinquency rate remains high among small corporations and self-employed individuals sensitive to economic conditions. Therefore, there is a need to prepare for potential credit loss expansion. The Financial Supervisory Service urged the banking sector to actively resolve delinquent loans through sales and write-offs, ensure sufficient loan loss provisions, and promote debt restructuring for borrowers at risk of delinquency.