Q2 Bank Non-Performing Loan Ratio at 0.41% 'All-Time Low'... Concerns Over Maturity Extension Illusion

0.03 Percentage Point Decline Compared to End of Q1

Financial Supervisory Service Encourages Financial Sector to Strengthen Loss Absorption Capacity

[Asia Economy Reporter Sim Nayoung] The ratio of non-performing loans (NPLs), including loans with interest repayments overdue by more than three months, at banks has recorded the lowest level in history for eight consecutive quarters since the third quarter of 2020. There are significant concerns about a distortion effect caused by the extension of loan maturities and repayment deferrals for small business owners. In response, the Financial Supervisory Service (FSS) plans to encourage the financial sector to strengthen its loss-absorbing capacity.

According to the FSS on the 1st, as of the end of June, the NPL ratio (classified as substandard or below) at domestic banks stood at 0.41%, marking a historic low. This figure is 0.03 percentage points (P) lower than at the end of the previous quarter and 0.12 percentage points lower compared to the end of June last year.

As of the end of June this year, the total amount of non-performing loans was 10.3 trillion won, a decrease of 500 billion won from the previous quarter. Among these, corporate loans accounted for 8.6 trillion won, representing 83.8% of total non-performing loans. Household loans amounted to 1.5 trillion won, and credit card receivables were 100 billion won.

Newly generated non-performing loans in the second quarter of this year totaled 2.3 trillion won, an increase of 500 billion won compared to the first quarter. Of these, newly non-performing corporate loans reached 1.7 trillion won, up 500 billion won from the previous quarter. Newly non-performing household loans remained at a similar level to the previous quarter, at 500 billion won. The amount of non-performing loans resolved was 2.9 trillion won, 100 billion won more than the same period.

The banking sector's loss-absorbing capacity has improved. As of the end of June, the loan loss provision coverage ratio stood at 205.6%, up 24.0 percentage points from the end of the first quarter. Compared to the same period last year, it improved by 50.5 percentage points. This phenomenon occurred as commercial banks increased their loan loss provisions in advance during the second quarter to prepare for worsening domestic and international economic conditions.

An FSS official stated, "Despite domestic and international economic shocks, we plan to encourage banks to strengthen their loss-absorbing capacity so that they maintain soundness and faithfully perform their fundamental role of supplying funds."

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