Delinquency Rate at Lowest Level but Household Delinquency Amount Expected to Increase

[Asia Economy Reporter Song Hwajeong] Although the delinquency rate on Korean won loans by domestic banks is at an all-time low, it is expected that the scale of household delinquencies will turn to an increasing trend over the course of the year.

At the end of March, the delinquency rate on Korean won loans by domestic banks turned to a downward trend after three months, standing at 0.22%.

According to the Financial Supervisory Service on the 22nd, the delinquency rate on Korean won loans by domestic banks (based on principal and interest overdue for more than one month) was 0.22% at the end of March, down 0.03 percentage points from 0.25% at the end of the previous month. Compared to the same period last year, it decreased by 0.06 percentage points. The delinquency rate of domestic banks has been fluctuating slightly around the 0.2% range since it fell to the 0.2% level in June last year.

In March, the amount of new delinquencies was 800 billion KRW, down 100 billion KRW from the previous month, while the amount of delinquent loans resolved was 1.5 trillion KRW, up 900 billion KRW from the previous month. By sector, the delinquency rate on corporate loans was 0.26%, down 0.04 percentage points from 0.30% at the end of the previous month. The delinquency rate on large corporate loans remained at 0.23%, the same as the previous month. The delinquency rate on small and medium-sized enterprise (SME) loans was 0.27%, down 0.05 percentage points from the previous month; the delinquency rate on small and medium-sized corporations was 0.35%, down 0.07 percentage points; and the delinquency rate on individual business loans was 0.17%, down 0.03 percentage points. The delinquency rate on household loans was 0.17%, down 0.02 percentage points from the previous month. The delinquency rate on mortgage loans was 0.10%, down 0.01 percentage points, and the delinquency rate on household loans excluding mortgage loans (such as credit loans) was 0.31%, down 0.06 percentage points.

The balance of household delinquencies is expected to shift to an increasing trend during the year. Kim Doha, a researcher at Hanwha Investment & Securities, said, "The improvement in the household delinquency rate in March was the lowest in 23 months, and the decline in the household delinquency rate has been gradually decreasing since October last year," adding, "Although the decrease in the balance of household delinquencies has continued for more than 20 months, it is expected to turn to an increase during the year, and the household delinquency rate will also return to an upward trend compared to the previous year."

Concerns about credit in the second half of the year are also expected to gradually increase. Researcher Kim said, "Since the decline in delinquencies among self-employed individuals is also slowing, the overall improvement in delinquency rates will decelerate," and "Considering the rising market interest rates and the sharp increase in borrowers' interest repayment burdens, credit concerns in the second half of the year will gradually expand."