As corporate loan delinquencies rise, the increasing volume of non-performing loans in banks has eroded their capacity to absorb losses, leading to a deterioration in their financial health.
According to Kookmin Bank, Shinhan, Hana, and Woori banks on Oct. 30, the balance of non-performing loans (NPLs) for the four major banks as of the end of September amounted to 3.3 trillion won (US$2.45 billion), representing a 4.23 percent increase, or 140 billion won, compared to the end of June when it stood at 3.16 trillion won.
Hana Bank witnessed the most significant increase in NPLs with a 11.3 percent rise, while Kookmin Bank also experienced a notable increase of 9.10 percent. Consequently, the NPL ratios for Hana Bank and Kookmin Bank increased by 0.2 percentage points and 0.1 percentage point, reaching 0.23 percent and 0.26 percent, respectively.
The increase in delinquencies, particularly in corporate loans, has had a significant impact. Kookmin Bank saw a 0.2 percentage point increase in both household and corporate loan delinquency rates, resulting in a total delinquency rate of 0.25 percent. Hana Bank maintained its household loan delinquency rate at the same level as it was in June, but with a 0.4 percentage point increase in corporate loan delinquencies, its total delinquency rate surged to 0.29 percent.
Shinhan Bank reported that household loans remained at the same level as in June, while corporate loans decreased by 0.1 percentage point, resulting in a total delinquency rate of 0.27 percent, which matched the rate at the end of June. Woori Bank, on the other hand, maintained its household loan delinquency rate but saw an increase of 0.3 percentage points in corporate loan delinquencies, leading to a total delinquency rate of 0.31 percent. Woori Bank is the only bank with a total delinquency rate in the 0.3 percent range. The average total delinquency rate for the four major banks at the end of September increased by 0.2 percentage points to 0.28 percent. However, Woori Bank managed to reduce the size of its NPLs through increased amortization.
The delinquency rates have increased while the ability to absorb losses has decreased. Kookmin Bank’s NPL coverage ratio decreased by 26.14 percent to 227.72 percent compared to the end of June, and Hana Bank experienced a 9.27 percent decline to 234.5 percent. Shinhan Bank, with a coverage ratio of 204 percent, demonstrated the lowest loss-absorption capacity among the four major banks, and even that decreased by 0.03 percentage point in the third quarter.
With the increase in delinquencies and non-performing assets, the banks’ risk-weighted assets have also grown. Hana Bank’s risk-weighted assets reached 194.55 trillion won, marking a 4.29 percent increase compared to the end of June, while Kookmin Bank's figures grew to 215.97 trillion won, reflecting a 3.36 percent increase. Shinhan Bank also experienced an increase of 3.24 percent in risk-weighted assets, reaching 200.39 trillion won, and Woori Bank’s figures increased by 3.3 percent to 176.98 trillion won.
On the other hand, due to declining net profits, capital decreased, leading to a decrease in capital ratios. Hana Bank’s Bank for International Settlements (BIS) ratio fell by 0.31 percentage points to 17.47 percent, while Shinhan Bank’s BIS ratio decreased to 18.16 percent, a 0.23 percentage point drop. Kookmin Bank also saw a decrease to 18.32 percent, reflecting a 0.13 percentage point decline, and Woori Bank had the lowest BIS ratio at 16.2 percent.