"Delinquency Rates of Regional Banks More Than Twice Higher Than Those of the Four Major Banks"

Bank of Korea's Report on the 'Financial Stability Situation'

The delinquency rate of regional banks was found to be more than twice as high as that of the four major commercial banks. This is interpreted as being influenced by increased competition among banks following the delayed recovery of the local economy and the launch of internet-only banks.

On the 30th, a counter at a major commercial bank in Seoul. Photo by Jinhyung Kang aymsdream@

According to the Financial Stability Report released by the Bank of Korea on the 26th, as of the end of June this year, the delinquency rate of regional banks was 0.67%, more than twice that of the four major commercial banks (0.29%).

For corporations, the delinquency rate of individual business owners rose from 0.54% in the second quarter of last year to 0.81% in the second quarter of this year. During the same period, the rate for large corporations decreased from 0.11% to 0.0%, while that for small and medium-sized corporations increased from 0.43% to 0.70%.

In the household sector, the delinquency rate on unsecured loans at regional banks was 1.63%, significantly higher than that of mortgage loans (0.24%). Compared to unsecured loans at the four major commercial banks (0.26%), it was 1.37 percentage points higher, indicating a deterioration in loan asset quality centered on vulnerable borrowers.

By industry, delinquency rates rose rapidly, especially in economically sensitive sectors such as construction, accommodation, and retail. Among regional banks’ small and medium-sized enterprise loans (0.75%), the delinquency rate in the construction industry increased from 0.48% in the first quarter of 2022 to 1.36%. The accommodation and food service industry rose from 0.28% to 1.04%, retail from 0.25% to 0.85%, and real estate from 0.15% to 0.66% during the same period. Although the four major commercial banks showed similar trends in delinquency rate increases in these sectors, the pace was generally faster for regional banks.

The Bank of Korea pointed out that the loss absorption capacity of regional banks is declining due to the rise in delinquency rates. The Basel III capital adequacy ratio (BIS ratio) of regional banks stood at 15.9%, showing little change compared to the past. However, the loan loss provision ratio (loan loss provisions/non-performing loans), which indicates the ability to respond to non-performing assets, decreased to 157.3% from 198.3% at the end of June 2022.

A Bank of Korea official said, “In some regional banks, the provision ratio is approaching the supervisory standard (100%) due to the increase in the volume of non-performing loans, indicating that improvements in loss absorption capacity have not been achieved.”

He added, “However, the write-off and sales rate against delinquent loans at regional banks was 65.9% in the first half of this year, which is positively evaluated as an effort to improve asset quality.”