“Delinquency rate for self-employed business owners hits a 13-year, 3-month high” ... Bank loan delinquencies rise further in August

[Financial News] The delinquency rate on won-denominated loans at domestic banks reached its highest level in about 10 years. In particular, the delinquency rate on loans to individual business owners soared to its highest level in 13 years and 3 months. With the economic slowdown adding to high interest rates, the interest burden on self-employed people and small business owners appears to be growing.
According to the Financial Supervisory Service on the 23rd, the delinquency rate on won-denominated loans at domestic banks stood at 0.69% at the end of August, up 0.06 percentage points from 0.63% at the end of the previous month. It was 0.08 percentage points higher than the 0.61% recorded in the same month last year. This was the highest level since 0.81% in October 2016.
The increase in the delinquency rate was relatively pronounced in corporate loans. The corporate loan delinquency rate rose to 0.86%, up 0.08 percentage points from a month earlier and 0.13 percentage points from the same month last year. The delinquency rate on loans to small and medium-sized enterprises rose 0.09 percentage points from the previous month to 1.00%. Among these, the rate for small and medium-sized corporations increased 0.10 percentage points to 1.10%, while the rate for loans to individual business owners rose 0.09 percentage points to 0.86%. The delinquency rate on loans to large corporations also rose 0.03 percentage points from the previous month to 0.39%. Compared with 0.15% in the same month last year, it was up 0.24 percentage points.
The delinquency rate on household loans rose 0.03 percentage points from the previous month to 0.45%, the same level as in the same month last year. By category, the delinquency rate on home mortgage loans was 0.31%, up 0.02 percentage points from the previous month and 0.01 percentage points from the same month last year. The rate for household credit loans and other loans excluding mortgages rose 0.07 percentage points from the end of the previous month to 0.91%, but was down 0.01 percentage points from the same month last year.
The delinquency rate rose as high interest rates and high prices weakened the repayment capacity of vulnerable borrowers, including small and medium-sized enterprises and self-employed people. However, the rate of new delinquencies itself did not rise sharply. The new delinquency rate in August was 0.12%, unchanged from the previous month and the same month last year. Newly delinquent loans totaled 3 trillion won, down 200 billion won from the previous month. The amount of delinquent loans resolved was 1.5 trillion won, only about half the amount of newly delinquent loans.
The Financial Supervisory Service said, “The banking sector’s delinquency rate remains below the 10-year long-term average of 0.78% for the period before COVID-19, so it is manageable over the medium to long term. However, given uncertainty in domestic and global economic conditions and the ongoing rise in market interest rates, delinquency rates may continue to rise, particularly in vulnerable sectors.”
An FSS official said, “Delinquency rates continue to rise, particularly for loans to small and medium-sized corporations, individual business owners, and household credit borrowers. We will continue to encourage banks to strengthen their soundness management by proactively building up their loss-absorbing capacity and actively writing off and selling nonperforming loans.”
[email protected] Park Mun-su Reporter