Rise in number of distressed corporate loans fans concerns

Rise in number of distressed corporate loans fans concerns
Rise in number of distressed corporate loans fans concerns

Composite images of Korea’s leading commercial banks / Korea Times file

By Lee Kyung-min

The financial soundness of the country’s leading commercial lenders is deteriorating, hobbled by climbing corporate loan insolvencies over the past year, data showed Sunday.

Further amplifying the concern is the pace of the debt growth, far faster than the country’s household debt. Institute of International Finance’s March data showed that Korea had the world’s highest household debt relative to GDP as of the fourth quarter of last year. Corporate debt grew at the fourth-fastest rate among 34 countries surveyed.

Distressed loans granted to businesses with weak financial profiles are expected to tick up, as indicated by commercial lenders fortifying sales efforts with corporate clients to offset diminishing interest income amid stricter lending regulations implemented to curb household debt.

According to financial market data, Some banks have registered an uptick in non-performing loans. A loan is non-performing if interest payments are 90 days past due and therefore considered unlikely to be repaid.

For KB Kookmin, such loans came to 0.42 percent as of the end of last year, up 0.16 percentage points from 0.26 percent a year earlier.

Hana’s figure rose to 0.29 percent, up from 0.24 percent. Woori’s figure remained unchanged at 0.23 percent.

The three had a combined 1.85 trillion won ($1.38 billion) in non-performing corporate loans as of last year, accounting for 0.32 percent of the corporate loan total of 587.2 trillion won.

By comparison, 0.17 percent is the proportion of loans in default among all household loans here, the total amount of which is 432.1 trillion won.

Shinhan and NH Nonghyup will release their data before April.

Bank of Korea data showed household loans extended by the five leading commercial lenders stood at 694.4 trillion won as of last year, a slight drop from 694.7 trillion won. In contrast, the total value of extended corporate loans rose to 888.2 trillion won, up 6.7 percent from 832.6 trillion won.

The increase of 6.7 percent can be understood as an overall surge in corporate loans.

Corporate loans extended by local lenders jumped to 1,247.7 trillion won as of the end of last year, up 6.6 percent from 1,170.3 trillion won a year earlier.

The growth in household loans was limited to 3.5 percent or 1,095 trillion won, up from 1,058 trillion won during the same period.

The central bank said last week that corporate loans extended by local lenders logged an increase of 8 trillion won in February, the second-steepest February jump since 2021 when the figure hit 8.9 trillion won.

“The government has put in place a variety of measures to curb household debt, a major challenge banks seek to overcome with the corresponding increase in issuance of corporate loans,” an industry official said. “We are aware of the financial soundness concerns, a risk factor mitigated by continued monitoring.”