SME Debt Defaults Rise: Bank Delinquency Rates Increase

(Current Affairs Journal = Reporter Kim Hye-in, Digital Team)

Bank loan delinquency rates have risen again. As of the end of October, the delinquency rate for won-denominated loans from domestic banks was 0.58%, up 0.07 percentage points in a month. Seasonal factors caused the delinquency rate to rise during the quarter, but if you look closely, the delinquency rate for small and medium-sized businesses is rising steeply.

According to the Financial Supervisory Service on the 26th, the delinquency rate of Korean won loans (based on principal and interest delinquency of more than one month) of domestic banks at the end of October was 0.58%, up 0.07 percentage points (p) from the previous month. However, it is lower than the 0.61% at the end of August.

The delinquency rate in the banking sector usually tends to rise during the quarter and then fall at the end of the quarter. In fact, it rose compared to the previous month in January and February at the beginning of this year, but fell to 0.53% in March. It then rose again in April and May, then fell to 0.52% in June, and after rising in July and August, it fell to 0.51% in September.

The amount of new delinquencies in October was 2.9 trillion won, an increase of 400 billion won from the previous month. On the other hand, the scale of delinquent debt settlement was 1.3 trillion won, down 3.5 trillion won from the previous month.

By sector, the corporate loan delinquency rate was 0.69%, an increase of 0.08 percentage points compared to the end of the previous month. In particular, the delinquency rate of small and medium-sized corporations showed the largest increase (0.12%p) at 0.93%.

The delinquency rate for small and medium-sized business loans rose 0.09 percentage points to 0.84%, and for individual business loans, it rose 0.07 percentage points to 0.72%. The delinquency rate for large corporate loans rose 0.02 percentage points to 0.14%.

The household loan delinquency rate also showed an upward trend. As of the end of October, the household loan delinquency rate was 0.42%, 0.03%p higher than the end of the previous month. The delinquency rate for home mortgage loans increased by 0.02 percentage points to 0.29%, and the delinquency rate for household loans, including credit loans excluding home mortgage loans, increased by 0.10 percentage points to 0.85%.

In relation to this, the Financial Supervisory Service said, “There are concerns that insolvency will expand in the future, especially in vulnerable sectors such as individual businesses and construction and local real estate where the industry continues to be sluggish,” and added, “To prepare for the possibility of expansion of delinquency and insolvency, we will encourage the maintenance of sufficient loss absorption capacity through sale of non-performing loans and expansion of provisions.”