South Korean bank loan delinquency rates hit 10-year high

South Korean domestic bank loan delinquency rates rose to 0.63% in July, the highest level in ten years since 2016. This increase was driven by a rise in new delinquencies, totaling 3.2 trillion won, alongside a significant reduction in the scale of delinquent debt settlements compared to the previous month.

Corporate loan delinquency saw a notable jump to 0.78%, largely influenced by the corporate rehabilitation and workout processes of JoongAng Group affiliates, which pushed large corporate loan delinquency to 0.36%. Small and medium-sized enterprise (SME) loan delinquency also rose to 0.91%. Household loan delinquency saw a slight increase to 0.42%, with credit loans showing more vulnerability than mortgage loans.

The Bank of Korea noted that while interest rate hikes typically impact loan rates after five months and delinquency rates after 15 months, the primary risk remains vulnerable borrowers with low repayment capacity. Meanwhile, major banks are actively competing for funds by issuing bank bonds and raising deposit rates to prepare for year-end liquidity needs and to support corporate lending in line with government policy.