North Jeolla has highest household loan delinquency rate at 1.3%

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The delinquency rate of household loans extended by South Korean banks was the highest in North Jeolla Province, exceeding 1 percent for the second straight month in May and standing three times higher than the national average.

According to data from the Bank of Korea (BOK) on Tuesday, the delinquency rate of household loans at depository banks in North Jeolla Province stood at 1.3 percent in May. The rate in other regions was about 0.3 percent~0.4 percent, with the national average standing at 0.37 percent.

Jeju Island had the second highest delinquency rate at 0.65 percent.

The gap between the delinquency rates in North Jeolla Province and the national average has been increasing since the beginning of this year.

As of December last year, the delinquency rate for household loans in North Jeolla Province was 0.57 percent, which was 2.3 times higher than the national average of 0.24 percent, but the gap increased to 3.5 times in May.

This trend is largely attributed to the deteriorating credit quality of Jeonbuk Bank Ltd., which is responsible for about one-fifth of the region’s loans. By the end of the second quarter, the bank’s delinquency rate of household loans reached 1.72 percent, which is six to seven times higher than the 0.2 percent to 0.3 percent range for other commercial banks.

In recent years, the bank has been focusing on loans for low- and medium-credit borrowers, including foreigners, as these loans have higher interest rates and provide larger margins despite risks of default.

The bank’s strategy of lending to low-and medium-credit borrowers is backfiring, however, as the effects of the base rate hikes slowly ripple out.

“The health of the bank’s loans to low-and medium-credit borrowers has deteriorated, leading to a higher delinquency rate in the entire North Jeolla region,” said a BOK official.

In the second quarter of this year, the bank’s net profit fell 4.1 percent year-on-year to 49.1 billion won ($38.06 million).

The delinquency rate for corporate loans in May, in the meantime, was highest in Daegu, North Gyeongsang Province, at 0.70 percent, followed by Daejeon, South Chungcheong Province, at 0.67 percent, Gwangju, South Jeolla Province, at 0.64 percent, North Jeolla Province at 0.59 percent, Busan, South Gyeongsang Province, at 0.54 percent, and Seoul at 0.51 percent.

The national average was 0.43 percent.

Shin Yong-sang, head of the Financial Risk Research Center at the Korea Institute of Finance, said that given the ongoing high-interest rate environment and economic difficulties, there is a possibility that delinquency rates may rise, particularly for regional and internet banks that have been lending to low-income individuals and small businesses.

He emphasized the importance of managing these risks through asset sales and write-offs to prevent spillover effects on the market.