The delinquent amount of bank corporate loans has increased 3.5 times in 5 years... 8 times the loan growth rate
One out of 10 mutual finance companies has a double-digit delinquency rate... Pressure on soundness to resolve non-performing loans
The amount of domestic corporate loan delinquency is increasing rapidly. While the delinquency of corporate loans in the banking sector exceeded 10 trillion won for the first time in history, the delinquency rate in corporate loans of non-bank financial institutions was found to be more than 9 times that of the banking sector. One out of 10 mutual credit unions and Saemaeul Geumgo has an overall loan delinquency rate in the double digits, highlighting both the repayment burden on vulnerable companies and the soundness of local financial institutions.
According to data from the financial sector and the National Assembly on the 12th, the delinquent amount of corporate loans from domestic banks at the end of the second quarter of this year was 10.1 trillion won. This is a 248.3% increase from 2.9 trillion won at the end of 2021. During the same period, corporate loan balance increased by 30.7% from 1,071.1 trillion won to 1,400.5 trillion won.
While the loan balance increased by about 1.3 times, the delinquent amount increased by nearly 3.5 times. The rate of increase in delinquent amounts was approximately 8.1 times the rate of increase in loan balances. The delinquency rate of corporate loans in the banking sector also increased from 0.26% at the end of 2021 to 0.68% in the second quarter of this year.
The amount of delinquent corporate loans in the banking sector increased from 5.3 trillion won at the end of 2023 to 6.9 trillion won at the end of 2024 and 8.4 trillion won at the end of last year. This year, 1.7 trillion won was added in just six months, surpassing the 10 trillion won mark for the first time.
Non-bank corporate loan delinquency rate of 6.28%... 9 times that of a bank note
The burden of insolvency is more pronounced in non-banking sectors. The balance of non-bank corporate loans, including savings banks, mutual finance companies, insurance companies, and specialized credit finance companies, increased by 27.6% from KRW 469.8 trillion at the end of 2021 to KRW 599.6 trillion in the second quarter of this year.
During the same period, the corporate loan delinquency rate increased from 1.32% to 6.28%. This is approximately 9.2 times the delinquency rate of corporate loans in the banking sector of 0.68%. The balance of corporate loans combined from banks and non-bank financial institutions amounted to 2000.1 trillion won in the second quarter of this year, an increase of 459.2 trillion won compared to the end of 2021.
The reasons behind the increase in delinquency include long-term high borrowing costs, the real estate recession, and sluggish sales at vulnerable companies. For real estate-related loans, it may be difficult to extend or refinance existing loans in the event of business delays or a decline in the value of collateral assets. Because the loan composition and borrower characteristics of each financial institution are different, it is difficult to explain the gap in delinquency rates between banks and non-banks with one specific cause.
Recent statistics from the Financial Supervisory Service also confirm the worsening trend of corporate loan soundness. At the end of July, the delinquency rate of domestic banks' corporate loans was 0.78%, up 0.10 percentage points from the previous month. The delinquency rate for small and medium-sized businesses was 1.00%, which was higher than 0.90% in the same month last year, and the delinquency rate for household loans during the same period was 0.42%.
Last June, the banking sector liquidated 5.3 trillion won in delinquent receivables, including corporate and household loans. Since write-offs and sales tend to be concentrated at the end of each quarter, it is difficult to simply compare monthly delinquency rates. In July, the overall delinquency rate in the banking sector also rose again as the amount of new delinquencies increased to 3.2 trillion won and the amount of delinquent receivables cleared decreased to 1.4 trillion won.
1 out of 10 mutual finance companies have high arrears... Non-performing loans sold KRW 5.8 trillion
The burden of delinquent payments continues at local financial institutions as well. According to data submitted by Rep. Song Ok-ju, a member of the National Assembly's Agriculture, Food, Rural Affairs, Oceans and Fisheries Committee, from the National Agricultural Cooperatives, Fisheries Cooperatives, Credit Unions, Forestry Cooperatives, and the Ministry of the Interior and Safety, there were 339 mutual credit unions and Saemaul Geumgo with a delinquency rate of 10% or more as of the end of June this year.
This corresponds to 9.9% of the total 3,437 locations. There was an increase of 135 places (66.2%) from 204 places at the end of last year. As the number was recorded at 320 at the end of 2024, it is difficult to conclude that the number of highly delinquent institutions has continued to increase for a long period of time.
Not only the delinquency rate but also the proportion of non-performing loans is high. In 909 places, or 26.4% of all cooperatives and safe deposit boxes, the ratio of non-performing loans exceeded 8%. NPL loans are loans with a low probability of recovery and are a key indicator for evaluating the asset soundness of financial institutions.
The corporate loan delinquency rate was in double digits at 10.24% for Credit Union and 10.17% for Saemaeul Geumgo. The delinquency rate of loans jointly handled by several cooperatives reached 17.87% for the Korea Forestry Cooperative and 17.70% for the National Agricultural Cooperative.
The total amount of non-performing loans sold by the five mutual financial companies in the first half of this year was 5.796 trillion won. Among these, Saemaul Geumgo accounted for the largest amount at 3.4784 trillion won. Selling non-performing loans is a means of improving the soundness indicators of financial institutions, but if the borrower's repayment ability is not restored, new delinquencies may occur.
Regarding the recovery of bad loans from Saemaeul Geumgo, the Ministry of Public Administration and Security explained, “Due to the decline in investment sentiment due to the real estate economic downturn and delays in auctions and public auctions, difficulties in timely recovery of bad loans are increasing.”
