Regional bank delinquency rates hit 15-year high amid rising defaults of self-employed

A traditional market in Jeonju, North Jeolla Province, appears quiet even ahead of the Lunar New Year holiday, Jan. 23. Newsis

The average delinquency rate at regional banks has soared past 1 percent this year, reaching its highest level in 15 years, industry officials said Wednesday.

They attribute the increase to a downturn in regional economies, which has left a growing number of self-employed individuals and small businesses struggling to repay their debts.

As of the first quarter of 2025, the average delinquency rate across Korea’s five major regional banks — BNK Kyongnam, BNK Busan, Kwangju, Jeonbuk and Jeju — reached 1.14 percent. This marks the highest figure since the third quarter of 2010 and nearly triples the rate recorded at major commercial banks.

The rise has been especially steep this year, with the rate climbing 0.33 percentage points in just three months — up from 0.81 percent at the end of 2024.

The trend is expected to continue. "Delinquency rates are expected to peak in the second half of the year," Kwon Jae-jung, chief financial officer at BNK Financial Group, said during the bank’s first-quarter earnings call on April 25.

Warning signs are flashing across regional economies, as domestic demand shows no signs of a rebound despite falling benchmark interest rates.

Lodging and food service sales — a bellwether for consumer activity — have declined for 22 consecutive months as of April, according to Statistics Korea.

In March, outstanding loans extended to self-employed individuals across all financial institutions reached 1,112 trillion won ($810.7 billion), up more than 50 percent from 738 trillion won in December 2019.

This prolonged slump has hit regional banks particularly hard, as they carry a high proportion of loans to self-employed individuals and small business owners based in local communities.

"The local economy is in such poor condition that bad loans continue to rise," a regional bank official said. "While we’re managing risk and trying to reduce delinquency rates through the sale of nonperforming loans, the pace of deterioration is outpacing our efforts."

In response to the mounting pressure, regional banks recently called on financial authorities to temporarily ease reserve requirements for potential loan losses.

They’ve also proposed new policies mandating that a minimum percentage of public sector transactions be conducted with local banks — an effort to improve operating conditions and reinforce their role in regional economies.

Experts say strengthening the resilience of regional banks is a critical step toward revitalizing local economies, stressing the urgent need for policy intervention.

"Regional banks are essential for supporting local small and medium-sized enterprises and promoting balanced regional development," said Lee Sang-won, a finance professor at Dong-A University.

"Rather than focusing solely on market competition, government policy should prioritize regional economic stability and development through strong support and regulatory easing."