Lowest Ever Delinquency and Non-Performing Loan Rates... Swift Progress Against Losses Amid 'Corona Paradox'

Suppression of Surface Exposure Due to Mangi Extension and Others

[Asia Economy Reporter Kim Hyo-jin] The ratio of non-performing loans (NPLs) and delinquency rates at banks have consecutively reached record lows. This indicates that the soundness of loans handled by banks is relatively good according to the indicators.

Amid the impact of the novel coronavirus disease (COVID-19) on both the financial and real sectors, this trend continues because various grace measures have prevented the immediate surfacing of bad debts, analysts say.

According to the Financial Supervisory Service on the 29th, the ratio of non-performing loans (classified as substandard or below) that have been overdue for more than three months among loans extended by banks to corporations and households stood at 0.65% as of the end of September, marking a record low. This is a 0.20 percentage point decrease compared to the end of the previous quarter (0.86%).

The NPL ratio of domestic banks has consistently remained in the 0% range since the end of the third quarter of 2008 (0.96%) and has now set a new low. Although the total loan volume increased by 43.7 trillion KRW from the previous quarter and by 189 trillion KRW compared to a year ago, reaching 2,148.7 trillion KRW, the amount of non-performing loans decreased by 900 billion KRW and 2.7 trillion KRW respectively.

By sector, the NPL ratio for corporate loans was 0.92%, down 0.07 percentage points from 0.99% at the end of the previous quarter. The NPL ratio for household loans was recorded at 0.23%, a 0.02 percentage point decrease from 0.25% at the end of the previous quarter.

The delinquency rate on won-denominated loans at domestic banks (based on principal and interest overdue for more than one month) also recorded the lowest figure since statistics began, at 0.30% as of the end of September.

A banking industry official said, "Due to measures such as loan maturity extensions, bad debts have not been outwardly revealed, creating a kind of optical illusion," adding, "The real issue will arise after these grace measures end." The official further noted, "Concerns are high as new loans may also become non-performing amid the ongoing impact of COVID-19."

According to the Financial Services Commission, from February this year to the 20th of this month, the total number of loan maturity extensions related to COVID-19 at commercial banks reached 263,000 cases, amounting to 74.5 trillion KRW. New loans totaled 786,000 cases, worth 46.9 trillion KRW. Combined, maturity extensions and new loans amount to 121.3 trillion KRW.

Accordingly, the banking sector is significantly increasing the loan loss provision ratio to prepare for sudden defaults and losses.

This content was produced with the assistance of AI translation services.