Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
SME loan defaults surge, yet banks forced to lend more
The graphic shows the headquarters of Korea’s four major banks, KB, Shinhan, Hana and Woori. Korea Times file
By Lee Yeon-woo
Korea's small- and medium-sized enterprises (SMEs) are sinking deeper into debt as weak domestic demand prolongs the economic slowdown into its second year. Yet banks, responding to government calls for "productive finance," continue to increase corporate lending even as delinquency rates rise, industry officials said Wednesday.
According to the Industrial Bank of Korea's management report, the bank's delinquency rate rose to 1 percent in the third quarter of 2025 — the highest level since the first quarter of 2009, during the height of the global financial crisis. SMEs account for about 80 percent of the bank's total lending.
Major commercial banks are facing similar strains.
Reports from the four major lenders — KB Kookmin, Shinhan, Hana, and Woori — showed that the average SME loan delinquency rate stood at 0.53 percent in the third quarter of 2025, the highest since the first quarter of 2017, when it reached 0.59 percent.
The overall rise in SME loan delinquencies across the banking sector this year largely stems from weak domestic demand, leaving more companies struggling to service their debt.
"The delinquency rates are particularly climbing among self-employed and financially vulnerable borrowers due to the uncertain economic environment at home and abroad, along with weak domestic demand," a banking official said.
Despite the deteriorating economic outlook, banks have continued to expand corporate credit in line with government guidance.
Under President Lee Jae Myung, financial authorities have directed banks to increase financing for businesses to stimulate investment. At the same time, they have introduced a series of stringent loan restrictions for homebuyers to help cool the housing market, instructing the banks to curb household mortgage lending.
As a result, outstanding SME loans at the five major banks — KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup — stood at 675.8 trillion won ($466.6 billion) as of October. That's up 11.75 trillion won since June, more than six times the 1.86 trillion won increase recorded in the first half.
Going forward, rising delinquency rates and currency volatility will weigh on banks' asset quality and risk appetite.
"With commitments to higher dividends and share buybacks, banks risk breaching capital targets if they take on riskier exposures, as they aim to keep their core capital ratios at 12.5–13 percent before expanding shareholder returns," said Rena Kwok, a senior credit analyst at Bloomberg Intelligence.
"Major listed banking groups will likely stay cautious in expanding risk-weighted assets near-term, prioritizing capital discipline as interest margins compress and asset quality weakens amid a challenging environment," Kwok added.