Snowballing NPLs
South Korean banks are being exposed to mounting insolvency risks in the shipbuilding and shipping sectors. The non-performing loans (NPLs) in the banking sector totaled 31.3 trillion won in the first quarter of this year, 1.3 trillion won more than three months ago. Besides, the amount does not include 24.409 trillion won that pertains to Daewoo Shipbuilding & Marine Engineering.
The Financial Supervisory Service announced on June 2 that South Korean banks recorded an NPL ratio of 1.87% in the previous quarter. This ratio is substandard credit divided by total credit, and Daewoo Shipbuilding & Marine Engineering was not included in the calculation as the company had no overdue interest in that quarter. At present, Daewoo Shipbuilding & Marine Engineering has to repay 12.61 trillion won to the Export-Import Bank of Korea, 6.342 trillion won to the Korea Development Bank and 1.414 trillion won to NH Nonghyup Bank.
The corporate NPL situation is much worse than that related to households. As of the end of March this year, South Korean enterprises had NPLs worth 29.2 trillion won, equivalent to 93.3% of the total. In addition, the ratio of corporate NPLs to the total credit rose from 2.09% to 2.56% between the end of 2014 and the end of 2015 and then to 2.67% until the end of March this year. The NPL ratio was especially high in the shipbuilding (12.03%), shipping (11.43%) and construction (4.27%) industries.
By bank, the Korea Development Bank’s NPL ratio reached 6.7% with loans provided for restructuring targets such as STX Offshore & Shipbuilding, Hyundai Merchant Marine and Hanjin Shipping concentrated on it. It was followed by the Export-Import Bank of Korea (3.35%) and NH Nonghyup Bank (2.15%). The percentage was 1.38% for Woori Bank, 1.24% for Hana Bank, 1.08% for KB Kookmin Bank and 0.86% for Shinhan Bank.