Korean banks’ delinquency rate hits 30-month high in February

A bank official provides consultation on loan programs to a customer. [Photo by Lee Chung-woo]

The delinquency rate of loans extended by South Korean commercial banks hit a 30-month high in February, rising at an alarming pace from a record low level on the back of various support measures during the pandemic.

The won-denominated loan delinquency rate, or loans overdue for at least one month, of local lenders stood at 0.36 percent at the end of February, according to data from the Financial Supervisory Service on Tuesday. The figure is up 0.05 percentage point from January and marks the second straight month of growth following a 0.06 percentage point increase in January.

Loans that were not managed by existing government support policies have become delinquent since the end of 2021 due to rising interest rates and ensuing asset market jitters, an official at a policy lender said. The country’s delinquency rate once fell to a record low thanks to various lending policies, repayment suspension, and maturity extension measures for those hit hard by the pandemic.

The overall delinquency rate for February was the highest in 30 months since 0.38 percent in August 2020. The delinquency rate at domestic banks, which fell to 0.2 percent in June 2022, has been gradually rising since the second half of last year, but is still lower than the pre-pandemic level.

The amount of new delinquencies in February totaled 1.9 trillion won ($1.42 billion), the same size as the previous month.

By sector, the delinquency rate of household loans excluding mortgages was the highest at 0.64 percent. The gain in February was the largest at 0.09 percent.

The delinquency rate of corporate loans stood at 0.39 percent at the end of February, up by 0.05 percentage point from the end of January. The figure of SME loans was up 0.08 percentage point to 0.47 percent during the same period.