5 Major Banks Grapple with Bad Corporate Debt Worth 2.7 Trillion Won

In the span of a year, bad loans in corporate lending from the five major banks have surged by over 400 billion won (US$300.98 million), heading towards the 3 trillion won mark. With the corporate sector facing economic challenges, there are concerns that the fierce competition in corporate lending among the banks could lead to a backlash of bad loans.

According to banking sources on Sept. 14, the non-performing loans (NPLs) generated from corporate loans at the five major banks – KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup – by the end of the first half of this year amounted to 2.77 trillion won, marking a 17.19 percent increase, or 406.3 billion won, compared to the previous year.

During the same period, corporate loans from the five major banks reached 911.71 trillion won, showing a 6.78 percent increase, or 57.9 trillion won. As a result, the NPL ratio stands at approximately 0.3 percent.

A concerning point is that the banking sector is intensifying its corporate lending efforts in recent times. The five major banks are strategically increasing corporate loans to offset the declining trend in household loans. With the rise in corporate loan interest rates, however, delinquency rates and NPL ratios are also on the rise.

In the past year, corporate loan interest rates have nearly doubled from the 3 percent range to 5 to 6 percent. As of July, the new loan interest rate for corporate loans at banks stood at 5.25 percent, an increase of 1.13 percentage points compared to the same month a year earlier. The second half of the year also sees concerns about the financial health of businesses due to the high interest rate environment and economic slowdown. Particularly, worries about delinquencies in loans to small and medium-sized enterprises (SMEs) are on the rise.

As of the end of the first half of the year, the delinquency rate for loans to SMEs at the five major banks averaged 0.36 percent, surpassing the delinquency rate for loans to large corporations, which averaged 0.07 percent, by 0.29 percentage points. Compared to a year ago, the delinquency rate for SME loans has increased by 0.15 percentage points.

The Credit Guarantee Fund, which provides guarantees for loans to SMEs, is also projecting that the SME delinquency rate for next year will be higher at 4.2 percent compared to this year’s rate of 3.9 percent, and it is actively engaged in risk management.