Delinquent loans mount

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Delinquent loans mount

The ratio of banks’ non-performing loans increased in the second quarter compared to three months ago, led by a growing number of bad commercial loans, the country’s financial regulator said yesterday.

According to the Financial Supervisory Service, the bad loan rate of 18 banks reached 1.73 percent as of end of June, up 0.27 percentage point compared to the end of March. The total amount of bad loans increased by 4.4 trillion won ($3.95 billion) to 24.9 trillion won over the same period.

A loan is considered to be non-performing when interest payments have been overdue for more than 3 months.

Of non-performing loans, 21.3 trillion won belonged to commercial loans at the end of the second quarter, a significant increase from 16.7 trillion won in the previous quarter.

The amount of bad household loans was 3.5 trillion won, a slight drop from 3.6 trillion in the first quarter. Delinquent credit card debt accounted for 200 billion won.

The delinquency rate of loans extended by banks to businesses, meanwhile, reached 2.22 percent as of the second quarter, up 0.43 percentage point compared to three months ago.

“The increase in the bad loan ratio in the commercial sector is due to the rising possibility that economy-sensitive businesses could go bankrupt,” said an FSS official. “In particular, the ratios of bad loans extended to companies in the shipbuilding and shipping industries have grown significantly.”

Based on FSS data, the ratio surged from 1.83 percent to 6.86 percent for the shipbuilding sector and from 1.65 percent to 6.59 percent for the shipping sector when comparing the first and second quarters.

The increase in bad loans comes at a time when banks have seen profits decline due to a sluggish economy, growing household debt and low interest rates. Last month, the FSS said it would create a joint task force with financial institutions to devise measures to overcome domestic and foreign challenges.

“There is a need for banks to strictly manage bad loans to improve their financial soundness,” the official said. “And based on that, banks should secure a stable business footing.”

In the meantime, FSS data showed that the ratio of non-performing loans among seven commercial banks was highest at Woori Bank at 2.9 percent at the end of June, followed by KB Kookmin Bank at 1.92 percent, Shinhan Bank at 1.43 percent and Standard Chartered Korea at 1.41 percent.

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