South Korean bank non-performing loans hit 8-year high

South Korean domestic banks reported a significant rise in non-performing loans (NPLs), reaching 18.9 trillion won as of the end of June. This marks the highest level in eight years, driven primarily by a surge in corporate debt defaults.

Corporate loans accounted for approximately 80% of the total NPL volume, totaling 15.2 trillion won. Within this sector, new defaults from small and medium-sized enterprises (SMEs) were a major factor, contributing 4.5 trillion won to the new bad debt. The NPL ratio for corporate loans rose to 0.77%.

While the total NPL ratio for domestic banks increased slightly to 0.63%, the Financial Supervisory Service noted that overall banking soundness remains acceptable. However, the loan loss provision ratio fell to 142.9%, down from 150.4% in the previous quarter. Authorities have advised proactive management due to potential risks from rising interest rates and geopolitical instability in the Middle East.