By Lee Hyo-sik
Kookmin and Nonghyup banks, and other lenders here are expected to incur huge losses in the coming months as a result of soaring bad loans in the sluggish construction sector.
This has posed another headache to the banking industry, already reeling from worsening bottom lines amid low interest rates, strengthened regulations and other unfavorable business conditions.
According to the Financial Supervisory Commission (FSS), Tuesday, 18 banks operating here extended a combined 154 trillion won ($139 billion) as of June to construction firms, realtors and other businesses engaged in the real estate market.
Builders and other property-related businesses were found to have already defaulted on loans worth 6.7 trillion won over three months, or 4.3 percent of the total. The default ratio is about three times the average delinquency rate of 1.5 percent across all sectors.
Woori Bank was found to have provided the largest amount to construction businesses at 23.5 trillion won, followed by Kookmin at 22.86 trillion won, Shinhan at 21 trillion won and Nonghyup at 15.1 trillion won.
Nonghyup saw its borrowers involved in the real estate sector fail to pay interest or principle on 1.55 trillion won in loans for longer than three months as of June, the largest among commercial lenders. Its default ratio stood at 10.3 percent, the highest in the industry.
Kookmin came in second with bad loans of 981.7 billion won, followed by Woori at 907 billion won and Shinhan at 849.7 billion won.
The FSS said 18 banks extended 11 percent of their outstanding loans on average to builders and other property-related businesses, adding that regional banks had a higher exposure to the construction industry.
Jeonbuk Bank was found to have given 20.7 percent of its loans to construction firms, followed by Gwangju Bank at 19.2 percent, Jeju Bank at 17.9 percent and Busan Bank at 15.3 percent. But their loan default ratios were relatively low, compared to those of their larger counterparts with an extensive nationwide network.
``With a fewer manufacturers operating in provincial areas, regional banks tend to extend more money to builders and other firms engaged in the property market. But their exposure to the economy-sensitive sector has declined after they wrote off massive bad debts last year,’’ an FSS official said
In contrast to home-grown lenders, foreign banks were found to have less exposure to the construction industry. Citibank extended only 5.7 percent of its outstanding loans to the construction sector as of June because it does not deal with project financing
Builders here secure orders from property developers, who take out project financing loans from banks. But many projects have foundered due to low demand for housing and office buildings amid the economic slump.
Construction firms are then forced to assume liabilities on behalf of developers in which a significant portion of such loans end up going sour.