Record Low Loan Delinquency Rate, May Drop Even Further

[Asia Economy Reporter Song Hwajeong] At the end of last year, the delinquency rate on won-denominated loans at domestic banks fell once again to an all-time low. This is interpreted as a result of the financial support measures related to COVID-19. Since the maturity extension and repayment deferral measures for small business owners are expected to be extended once more, the delinquency rate is anticipated to decline further.

According to the Financial Supervisory Service on the 1st, the delinquency rate on won-denominated loans at domestic banks (based on principal and interest overdue for more than one month) was 0.21% at the end of December last year, down 0.04 percentage points from 0.25% at the end of the previous month. Compared to the same period last year, it fell by 0.06 percentage points.

The delinquency rate dropped from 0.45% in January 2019 to 0.36% in December 2019, and further declined to 0.28% in December 2020. In June last year, it was 0.25%, and by September, it had fallen to 0.24%.

In December last year, the amount of newly incurred delinquencies was 900 billion KRW, similar to the previous month, while the amount of delinquent loans resolved increased to 1.7 trillion KRW from 700 billion KRW in the previous month.

By sector, the delinquency rate on corporate loans was 0.26%, down 0.05 percentage points from 0.31% at the end of the previous month. The delinquency rate on large corporate loans remained similar at 0.24%. The delinquency rate on small and medium-sized enterprise (SME) loans fell by 0.06 percentage points to 0.27%, SME corporate delinquency rate dropped by 0.08 percentage points to 0.36%, and the delinquency rate on individual business owner loans decreased by 0.04 percentage points to 0.16%.

The delinquency rate on household loans was 0.16%, down 0.03 percentage points from the previous month. The delinquency rate on mortgage loans was 0.10%, down 0.01 percentage points, while the delinquency rate on household loans excluding mortgage loans (such as credit loans) fell by 0.07 percentage points to 0.29%.

The historically low delinquency rate is attributed to the maturity extension and repayment deferral measures for small business owners. This creates a visual distortion where non-performing loans do not appear due to the extensions and deferrals. Given that these measures are scheduled to be extended for another six months, the delinquency rate could potentially fall below 0.2%.

On the previous day, Financial Services Commission Chairman Ko Seung-beom held a meeting with bank presidents and reached a consensus to actively pursue extending the maturity extension and repayment deferral measures for small business owners by six more months.

A financial industry official said, "Basically, repayment deferrals and maturity extensions have the effect of preventing delinquencies," adding, "If COVID-19 financial support is extended further, the delinquency rate will not suddenly worsen and may decrease even more."

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