Increase in 'Kkangtong Loans' at Four Major Banks... Rising Loss Processing Costs

Last year, the asset soundness indicators of the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori Bank) deteriorated compared to the previous year. In particular, the amount of non-performing loans, also known as ‘empty-can loans,’ which are judged as unrecoverable, increased. The actual costs written off due to unrecovered loans also rose.

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The total non-performing loans of the four major banks increased by about 21%, from 2.2884 trillion KRW at the end of 2022 to 2.7626 trillion KRW at the end of 2023. KB Kookmin Bank showed the highest growth rate, rising from 522.2 billion KRW to 749.9 billion KRW, an increase of approximately 43.5%. Hana Bank held the largest balance of non-performing loans at 877.8 billion KRW. Shinhan Bank was the only bank to see a decrease in non-performing loans, dropping about 4.2% from 632.7 billion KRW to 606.0 billion KRW. Non-performing loans refer to bad debts where the possibility of recovering the lent money is either impossible or very difficult. These are loans on which neither principal nor interest is being repaid.

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Provisions for non-performing loans, which are reserves set aside against delinquency rates and non-performing loans, also increased across the board. KB Kookmin Bank’s provision ratio rose from 0.16% to 0.22%, while Hana Bank and Woori Bank increased from 0.2% and 0.21% to 0.26% and 0.28%, respectively. Shinhan Bank’s ratio went up from 0.21% to 0.26%. The total provisions for non-performing loans of the four major banks increased from 6.4313 trillion KRW in 2022 to 8.0644 trillion KRW last year, marking an increase of about 25.4%.

As bad debts increased, the cost of loan loss write-offs, which are expenses recognized as losses when loans are confirmed unrecoverable, also rose. The loan loss write-offs of the four major banks increased by about 46.7%, from 2.5065 trillion KRW to 3.6762 trillion KRW. Among the banks, Woori Bank showed a steep increase, rising from 459.2 billion KRW to 955.6 billion KRW, an increase of approximately 108%.

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The increase in corporate loans is pointed out as the cause of this phenomenon. As the government tightened regulations on household loans, banks tried to maintain interest income by expanding the scale of corporate loans. Excluding Shinhan Bank, which does not disclose figures in its business report, the total loans of the other three banks increased by 4.6% compared to the previous year. Household loans increased by only 0.5%, whereas corporate loans rose by 7.8%. The increase rate of non-performing loans at the three banks showed a similar trend. Non-performing loans related to households increased by 22.1%, while those related to corporations rose by 34.7%.

Industry experts believe that the combination of high interest rates and economic recession has lowered corporate debt repayment capacity, making it difficult for banks to recover loan principal and interest. Additionally, the sluggishness in the construction and real estate sectors, due to the fallout from bad real estate project financing (PF), is also considered to have had an impact.

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