Banks reduce bad loan level to 1.5%

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Banks reduce bad loan level to 1.5%

Local banks in Korea reduced their level of bad loans to 1.5 percent at the end of the second quarter, data from financial regulators shows, compared to the previous 1.56 percent.

Still, the ratio of bad corporate loans remains high at 2.03 percent, compared to 1.66 percent at the end of 2012, new data shows. Particularly, construction and shipbuilding companies, which struggled with slowed overseas demand and low sales in the second quarter, couldn’t repay their loans.

The total number of nonperforming loans, referring to loans in arrears for more than 90 days, at local banks stood at 24 trillion won ($20 billion), falling from 24.7 trillion won, according to a quarterly report released Friday by the Financial Supervisory Service (FSS).

Ninety percent of the bad loans were from the corporate sector, the report said, mounting to 21.6 trillion won. Household debt amounted to 2.3 trillion won and unpaid credit card bills stood at 100 billion won.

Compared to household debt, the growth in bad corporate loans was faster, the data shows. While about 5 trillion won of corporate loans were newly classified as nonperforming, jumping from 3 trillion won in the first quarter, newly added bad household loans fell to 700 billion won from 800 billion won.

Particularly, the FSS pointed out that the ratio of bad loans in construction and shipbuilding were high, as Korea’s leading industries recorded sagging sales records in the second quarter. Nearly 10 percent of all the bad loans were from construction (4.76 percent) or shipbuilding companies (5.88 percent), the report said.

Through various means, Korean banks disposed of more bad loans than they did in the previous quarter. About 6.4 trillion won of nonperforming loans were disposed of, by allowance for the debt, about 2.4 trillion won, or selling the pledged collateral, 1.7 trillion won. The amount of the disposed of bad debt in the second quarter was 2.4 trillion won higher than in the first quarter.

“The regulators will closely monitor the financial soundness of local banks based on their nonperforming debt ratio, particularly focusing on some fragile industries like construction or shipbuilding,” the report said.

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