Large firms’ delinquency ratio hits four-year high

By Kang Seung-woo

Major companies’ delinquency rate with Korean banks reached its highest level in five years last month due to increased defaults by shipbuilders and constructors, the financial watchdog said Monday.

According to the Financial Supervisory Service (FSS), local banks’ lending to major companies recorded a 1.36 percent delinquency ratio as of the end of October, up 0.86 percentage points from a month earlier.

The number marked the highest since the 1.6 percent tallied in November 2006. The ratio is measured based on lending that is overdue for more than one day.

“Slumping business conditions in the shipbuilding and construction industries and seasonal factors resulted in the increased default rate in major corporate lending,” said an official at the FSS.

The ratio of overdue loans by shipbuilders increased 7.47 percentage points month-on-month to 10.8 percent, while that of constructors recorded 2.9 percent, up from 1.79 percent the previous month, the financial watchdog noted.

Overdue loans by major players in real estate, construction and shipbuilding, increased by 1 trillion won ($886 million) from 100 billion won to 1.1 trillion won in the cited period.

As for bank loans to small and mid-sized firms, their default rate posted 1.83 percent, up 0.27 percentage points from a month ago.

Due to the steep growth in major corporate loans, local lenders’ overall loan default rate ― including households ― stood at 1.28 percent last month, up 0.24 percentage points from October.

Last month’s reading was the largest climb since July 2010, when the delinquency ratio soared 0.28 percentage points.

Meanwhile, local households’ delinquency ratio moved up 0.04 percentage points to 0.75 percent last month, the FSS said.

Home-backed loans, which take a large portion of household debt, saw their default rate inch up from 0.63 percent to 0.66 percent.

With the exclusion of home-equity loans, households’ default rate posted 0.93 percent.

However, as the nation’s household debt is expected to pick up due to slowing growth and high inflation, their debt-service capacity is likely to worsen.

Observers estimate that household debt may grow by more than 60 trillion won this year and if it continues to rise at its current pace, household indebtedness may surpass the 1 quadrillion won mark in 2013. Korea’s household debt stood at 892.5 trillion won as of the end of September.

Amid growing uncertainties in global financial markets and soaring consumer prices, the FSS plans to closely keep delinquency ratios in check.

“The FSS will strengthen the monitoring of delinquencies in vulnerable sectors and encourage banks to resolve delinquent and non-performing loans to achieve their year-end target ratio," the watchdog said.