Report on "NPL Market Trends and Outlook" Highlights Rising Risks
Corporate Loans Account for 80% of Non-Performing Loans
Non-Bank Financial Institutions Face Faster Asset Deterioration
NPL Sales Hit Record Highs as Banks Manage Asset Quality
Market Growth Expected Amid Global Economic Uncertainties
The scale of non-performing loans (NPLs) managed by domestic banks has shown a steady increase since the end of 2022 (10.1 trillion KRW). In particular, due to high interest rates and economic slowdown, the corporate loan sector accounts for 80% of total NPLs, indicating growing structural risks.
According to the 'NPL Market Trends and Outlook' report published by Samjong KPMG on the 10th, as of the end of the third quarter last year, the size of NPLs in domestic banks was estimated at 14.5 trillion KRW (excluding credit card sector). Corporate loan NPLs surged about 30% compared to the same period last year (9 trillion KRW), reaching 11.7 trillion KRW, while household loan NPLs increased by 13% to 2.6 trillion KRW during the same period.
As of the end of the fourth quarter last year, the delinquency rate of domestic banks was 0.44%, slightly down from the previous quarter (0.45%) due to year-end delinquent loan clearance, but up 0.06 percentage points compared to the same period last year (0.38%). Internet-only banks had the highest delinquency rate at 0.67%, and specialized banks also showed a sharp rise at 0.61%.
Furthermore, the ratio of non-performing loans classified as substandard or below in general banks continued to rise, recording 0.35% in the third quarter of 2024. This marks a steady increase since the third quarter of 2022 (0.23%), with the scale of newly generated NPLs expanding from 2.3 trillion KRW to 3 trillion KRW during the same period.
The report analyzed that domestic banks have actively engaged in NPL sales since 2023 to manage asset soundness, with the annual sales volume last year reaching a record high of 8.3 trillion KRW.
In the case of non-bank financial institutions, asset quality is deteriorating faster than banks. As of the end of the third quarter of 2024, the delinquency rate for household loans was 2.18%, with other loans (2.73%) higher than mortgage loans (1.1%), driving the increase in delinquency rates. The delinquency rate for corporate loans (6.4%) rose by 2.17 percentage points compared to the same period last year (4.23%).
The loan delinquency rate of mutual finance cooperatives reached 4.38% in the first half of 2024, and the corporate loan delinquency rate jumped significantly to 8.39% as of the third quarter. The ratio of non-performing loans classified as substandard or below also surged sharply from 3.91% in the same period last year to 6.63%.
Savings banks experienced a decline in asset soundness due to real estate project financing (PF) risks and increased borrower repayment burdens, with the loan delinquency rate rising to 8.8% in the third quarter of 2024, up 2.7 percentage points from 6.1% in the same period last year. The corporate loan non-performing loan ratio soared from 6.97% to 15.86%.
The ratio of non-performing loans classified as substandard or below also increased among insurance companies, securities firms, and specialized credit finance companies (yeojeonsa). Life insurance companies maintained stability (0.2% → 0.3%), but securities firms (2.5% → 4.7%), yeojeonsa (1.6% → 2.2%), and non-life insurance companies (0.7% → 1.3%) all saw significant year-on-year increases.
The NPL sales market is also gaining momentum. Since 2019, the share of NPL specialists in the overall market has exceeded 90%, and as of 2024, NPL specialists purchase 98.7% of total NPL investment cases and 99.8% by scale. The average purchase rate exceeded 90% in early 2023 but has declined in 2024, falling to 76.6% in the fourth quarter of 2024, which is expected to help maintain a stable profit structure.
The report forecasts that the NPL market will show growth this year amid uncertainties caused by global economic recovery and the Trump administration's strengthened protectionism. Domestically, downward pressure on the economy exists due to sluggish domestic demand and exports, high household debt, and real estate PF risks, and accordingly, NPL supply is expected to expand mainly in the non-bank sector. On the demand side, competition among specialized firms is intensifying, but investment conditions remain favorable due to expectations of interest rate cuts and improved funding environments. Therefore, a diversified investment and risk management approach considering economic volatility and recovery potential is advised.
Jung-hwan Kim, Executive Director at Samjong KPMG, diagnosed, "U.S. protectionism and intensified trade conflicts are causing a global economic slowdown, which is fueling rising delinquency rates among domestic companies and the non-bank sector." He added, "This trend is likely to continue for the time being. The NPL market is expected to maintain stable growth in 2025, and it is a time for strategic approaches responding to various variables such as interest rate trends, real estate market, and regulatory easing."
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