Extension of COVID Loans Creates 'Optical Illusion'... Bank Sector's Non-Performing Loan Ratio Hits Another Record Low

[Asia Economy Reporter Kim Jin-ho] The non-performing loan (NPL) ratio of domestic banks has once again recorded an all-time low. This is being pointed out as a 'visual distortion effect' caused by COVID-19 loan maturity extensions and interest rate cap exemptions.

On the 31st, the Financial Supervisory Service announced that as of the end of September, the NPL ratio of domestic banks stood at 0.51%, down 0.03 percentage points from the end of the previous quarter (0.54%). This is another record low following the end of June and is 0.14 percentage points lower compared to the same period last year (0.65%).

The amount of non-performing loans decreased by 300 billion KRW (-2.3%) from the previous quarter to 11.9 trillion KRW. Corporate loans accounted for the majority (86.2%) of total NPLs at 10.3 trillion KRW, followed by household loans (1.5 trillion KRW) and credit card receivables (100 billion KRW).

Newly generated NPLs in the third quarter amounted to 2.9 trillion KRW, an increase of 300 billion KRW compared to the previous quarter (2.6 trillion KRW). This increase was due to corporate loan new NPLs rising by 300 billion KRW to 2.3 trillion KRW from 2 trillion KRW in the previous quarter. Household loan new NPLs remained at around 500 billion KRW, similar to the previous quarter.

The amount of NPLs resolved in the third quarter was 3.1 trillion KRW, down 1.1 trillion KRW from the previous quarter (4.2 trillion KRW). The breakdown was sales and disposals (1.2 trillion KRW), loan normalization (1 trillion KRW), and loan recovery through collateral disposal (800 billion KRW), in that order.

Looking at the NPL ratio by sector, the corporate loan NPL ratio (0.72%) fell by 0.04 percentage points from the end of the previous quarter. The household loan NPL ratio (0.17%) decreased by 0.01 percentage points compared to the previous quarter.

Meanwhile, as of the end of September, the loan loss provision coverage ratio of domestic banks was 156.7%, up 1.6 percentage points from the end of the previous quarter (155.1%). This is an increase of 26.1 percentage points compared to the same period last year (130.6%).