The bad loan ratio of banks in South Korea dropped in March from the previous month due to lenders' greater efforts to make their balance sheets cleaner, the financial watchdog said Friday.

Local banks' non-performing loans accounted for 1.09 percent of their total lending as of end-March, down 0.04 percentage point from February, according to the Financial Supervisory Service (FSS).

The delinquency ratio for corporate loans stood at 1.32 percent last month, a 0.06 percentage point drop from February, with comparable figures for household loans edging down 0.01 percentage point to 0.84 percent last month.

"Local lenders generally take steps to clear or write off overdue debt at the end of every quarter and the slight drop in March reflects this seasonal trend," an FSS official said.

He said banks reported settling 2.9 trillion won worth of bad debts in the cited month, up 1.0 trillion won from February. Loans newly categorized as being delinquent in the cited month reached 2.5 trillion won, unchanged from the month before.

The data comes as Seoul is moving to control loans to the private sector that could destabilize Asia's fourth-largest economy in the long run. Excessive debt affects consumption that can hurt production and business investment.

As of March, loans extended to households by banks totaled 449 trillion won, with money given to companies hitting 599 trillion won, the FSS said. (Yonhap)