Commercial lenders face rising delinquencies, write-offs

[Graphics by Song Ji-yoon]

South Korean commercial lenders have seen a spike in loan delinquency rates during the first quarter of 2024 alongside the notable surge in the volume of non-performing loans they wrote off. Analysts pointed to an economic slowdown and a prolonged period of higher interest rates that saw both households and businesses struggle to repay their loans.

The construction industry has been heavily affected by soaring delinquency rates amid a downturn in the real estate market. According to sources familiar with the financial industry on Sunday, the average delinquency rate for loans across the country‘s five major commercial banks stood at 0.32 percent by the end of the first quarter of 2024, increasing by 0.03 of a percentage point from the previous quarter. For households, the rate hit 0.28 percent, up by 0.02 percentage points. The five banks are KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup.

The delinquency rate for business loans rose to 0.35 percent by the end of the first quarter of 2024, marking a 0.04 percentage point increase from the previous quarter. The construction industry in particular witnessed a substantial increase in delinquencies, which can be attributed to rising defaults on project-financing loans.

Shinhan and Hana said more than 1 percent of their construction loans have become delinquent as of the end of the first quarter. Shinhan Bank said delinquent construction loans comprised 1.18 percent of its total construction loans, up from 0.75 percent at the end of the previous year, while Hana Bank’s rate increased to 1.13 percent.

The quintet wrote off non-performing loans worth 1.6 trillion won ($1.16 billion) in the first quarter of 2024, a fourfold increase compared to 2022 and nearly double the volume from the same quarter of the previous year.