Photo courtesy of Yonhap News

 

 

[Alpha Biz= Paul Lee] South Korea’s five largest commercial banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH NongHyup Bank—wrote off or sold a combined KRW 8.42 trillion ($6.2 billion) in bad loans last year, according to financial industry data released on March 2.

The figure marks a 19.6% increase from the previous year and the highest level on record. Bad loan disposals had fallen sharply to KRW 2.28 trillion in 2022 amid pandemic-era financial support measures, but rebounded to KRW 5.36 trillion in 2023 and KRW 7.04 trillion in 2024 before surpassing the KRW 8 trillion mark last year.

Banks typically classify loans overdue by more than three months as substandard or below, and remove them from their balance sheets through write-offs or sales to asset management companies to protect asset quality ratios, even at the cost of near-term losses.

The surge in bad loan disposals reflects a prolonged economic downturn driven by high interest rates, inflation, and currency volatility, which has strained repayment capacity among small and medium-sized enterprises and self-employed borrowers.

However, analysts warn that asset quality indicators continue to deteriorate despite large-scale cleanup efforts. According to the Financial Supervisory Service, the delinquency ratio at domestic banks stood at 0.50% at the end of last year, up for the fourth consecutive year and the highest level in a decade.

Corporate loan delinquencies led the increase, with SME delinquency rising to 0.72%, while large corporate loan delinquencies climbed to 0.12%. With domestic demand remaining weak and policy-driven expansion of inclusive and productive finance expected this year, banks are likely to face growing pressure to strengthen risk management, industry observers said.

 

 

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