South Korean banks face rising bad debt and deposit competition

South Korea’s five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—are facing a dual challenge of rising bad debt and intensifying competition for deposits.

Non-performing loans (NPLs), defined as loans with principal or interest payments overdue by more than three months, have exceeded 6 trillion won for the first time. This represents 0.34% of total loans, the highest level since the COVID-19 pandemic in February 2020. Corporate NPLs saw a sharp increase of over 36% compared to the end of last year, driven by high interest rates, sluggish domestic demand, and a downturn in the real estate market. While household NPLs also rose, the growth in corporate credit risk is particularly pronounced.

Simultaneously, banks are engaging in aggressive competition to attract deposits as they anticipate potential interest rate hikes and a ‘reverse money move’ from the stock market. Major banks have introduced special high-interest time deposit products, with some offering rates in the 3% range and savings accounts reaching as high as 8%. This competition has led to a significant increase in deposit balances, with the five major banks seeing a monthly increase of approximately 35.5 trillion won in regular deposit balances.