KDB Future Strategy Research Institute Report
"Concerns Over Declining Debt Repayment Capacity Due to Strong Exchange Rate and U.S. Tariffs"
Recommendation to Strengthen Soundness Management of Non-Manufacturing Loan Assets, Including Construction S
As the Lee Jaemyung administration emphasizes productive finance and corporate lending is rapidly increasing, there are growing concerns about the simultaneous rise in delinquency rates and non-performing loans, highlighting the need for tighter management.
According to the financial sector on December 16, the KDB Future Strategy Research Institute stated in its report, "Recent Status of Corporate Loan Delinquency Rates and Non-Performing Loans," that "it is necessary to strengthen the management of corporate loan soundness." The delinquency rate for domestic corporate loans has been steadily rising since the outbreak of COVID-19, with a particularly sharp increase in non-bank institutions and among small and medium-sized enterprises (SMEs). According to data from the Bank of Korea, the overall corporate loan delinquency rate stood at 2.72% as of June this year, up by 0.43 percentage points from the end of last year (2.29%). This figure is approximately 3.5 times higher than at the end of 2019, before the COVID-19 outbreak (0.78%).
By sector, delinquency rates have increased across all financial sectors compared to pre-COVID-19 levels, but the rise has been especially pronounced among non-bank institutions (including savings banks, mutual finance, insurance companies, and specialized credit finance companies). As of June this year, the corporate loan delinquency rate in the banking sector was 0.6%, up 0.1 percentage points from the end of last year. This represents a 0.15 percentage point increase compared to the end of 2019 (0.45%), before the pandemic. In contrast, the rate for non-bank institutions rose to 7.11%, an increase of 1.14 percentage points from the end of last year (5.97%), marking a much larger jump than in the banking sector. Notably, this is a 5.49 percentage point increase compared to the end of 2019 (1.62%).
By company size, large corporations saw their delinquency rate decrease compared to pre-pandemic levels, with rates at 0.29% in March 2020, 0.03% at the end of last year, and 0.22% as of June this year. In contrast, SMEs saw their rates rise from 1.06% to 2.75% and then to 3.24% over the same periods, nearly tripling. The institute also highlighted the continued rise in delinquency rates related to real estate project financing (PF). The overall real estate PF delinquency rate across all financial sectors increased steadily from 1.19% in December 2022 to 2.7% in 2023, 3.42% at the end of last year, and 4.39% as of June this year. The institute explained, "Delinquency rates have increased due to the restructuring and liquidation of projects with insolvency concerns and the sluggish real estate market, particularly in non-apartment and regional areas."
The ratio of corporate non-performing loans has also been steadily rising, especially among SMEs and in the construction sector, and more recently, in the accommodation and food service, wholesale and retail, and real estate sectors. As of June this year, the non-performing loan ratio for large corporations and SMEs in the banking sector was 0.22% and 0.65%, respectively, which is higher than the lowest levels recorded in September 2022 (0.14% and 0.33%) since the COVID-19 outbreak. In particular, the ratio for SMEs exceeds the 0.6% recorded at the end of 2019. By industry, the construction sector maintains a high non-performing loan ratio at 1.46%. This year, the non-performing loan ratios have increased mainly in accommodation and food service (from 0.42% to 0.64%), wholesale and retail (from 0.43% to 0.56%), and real estate (from 0.48% to 0.61%).
The institute emphasized in its outlook that "amid continued high exchange rates and the intensification of U.S. tariff policies, a slowdown in exports is expected, raising concerns about the deterioration of corporate debt repayment capacity." Additionally, the institute expressed concern over the rising proportion of marginal companies in the real estate and accommodation and food service sectors. Specifically, the proportion of marginal companies among external audit firms (companies required to submit audit reports) increased from 14.9% in 2021 to 17.1% last year, with particularly high levels in real estate (39.4%) and accommodation and food service (28.8%). The institute suggested, "As the real estate PF delinquency rate has been rising since 2022, the non-performing loan ratio remains high mainly in the construction sector, making it necessary to strengthen soundness management for non-manufacturing loan assets."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
