Illusion of Soundness Improvement?…Banking Sector Non-Performing Loan Ratio at Lowest 0.54%

0.08 Percentage Point Decrease Compared to 0.62% at the End of the Previous Quarter

[Asia Economy Reporter Park Sun-mi] The non-performing loan (NPL) ratio of domestic banks as of the end of June hit a record low of 0.54%. This is interpreted as a misleading effect of improved asset quality due to COVID-19 financial policy support, which simultaneously deferred principal and interest repayments.

According to the Financial Supervisory Service on the 31st, the NPL ratio of domestic banks at the end of June was 0.54%, down 0.08 percentage points from 0.62% at the end of the previous quarter. This is the lowest record ever. Compared to 0.71% recorded in the same period last year, it is 0.17 percentage points lower.

The amount of non-performing loans was 12.2 trillion KRW, down 1.6 trillion KRW (-11.5%) from the end of the previous quarter. Corporate loans accounted for the majority of non-performing loans at 10.5 trillion KRW (86.0%), followed by household loans (1.6 trillion KRW) and credit card receivables (100 billion KRW).

Newly generated non-performing loans in the second quarter of this year amounted to 2.6 trillion KRW, an increase of 200 billion KRW compared to 2.5 trillion KRW in the previous quarter. New corporate loan non-performing loans increased by 200 billion KRW to 2 trillion KRW from 1.8 trillion KRW in the previous quarter, while new household loan non-performing loans remained similar at 500 billion KRW. On the other hand, the amount of non-performing loans resolved in the second quarter was 4.2 trillion KRW, up 1.5 trillion KRW from 2.7 trillion KRW in the previous quarter. This was mainly through write-offs and sales (write-offs of 900 billion KRW, sales of 1 trillion KRW), loan normalization (1.3 trillion KRW), and loan recovery through collateral disposal (800 billion KRW).

Looking at the NPL ratio by sector, the corporate loan NPL ratio (0.76%) fell 0.13 percentage points from 0.89% at the end of the previous quarter, and the household loan NPL ratio (0.18%) decreased by 0.02 percentage points from 0.20%. The credit card receivables NPL ratio (0.83%) also dropped 0.14 percentage points from 0.97% at the end of the previous quarter.

By bank type, commercial banks and internet banks recorded NPL ratios of 0.30% and 0.27%, respectively, while regional banks stood at 0.49%, and specialized banks at 0.93%.

Meanwhile, the loan loss provision coverage ratio of domestic banks at the end of June was 155.1%, up 17.7 percentage points from 137.3% at the end of the previous quarter. Compared to 121.2% in the same period last year, it rose by 33.8 percentage points.

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