By Kang Seung-woo
The Korea Development Bank (KDB) and Woori Bank have emerged as the biggest victims from the prolonged slump in the real estate market, as their bad loan ratios have been soaring due to massive delinquency of their project financing (PF) loans.
The Financial Supervisory Service (FSS) said Thursday that the bad loan ratio at the state-run KDB was the highest among local lenders in June at 3.7 percent, well above the industry average of 1.94 percent, which was also up from 1.48 percent in March.
Woori Bank ranked second with 3.03 percent, followed by Nohghyup (2.94 percent), Suhyup (2.22 percent), Daegu Bank (2.1 percent), Kookmin (1.98 percent), Citibank Korea (1.98 percent) and Hana (1.37 percent). The bad loan ratio refers to the portion of loans overdue for more than three months.
The combined figure for the Korean lenders reached a six-year high of 1.94 percent, the highest since the third quarter of 2004 when it was 2.37 percent. Non-performing loans totaled 25.5 trillion won in June, up 6.6 trillion won from the first quarter.
“Local banks suffered from a sharp rise in bad loans as a growing amount extended to finance real estate projects turned sour due to the sluggish property market,” an FSS official said.
“In addition, aggressive corporate restructuring programs have driven a large number of firms to insolvency,” he added.
On June 25, creditor banks unveiled a list of 65 firms, including 16 builders, which were put under creditor-led restructuring programs in order to prevent their financial problems from translating into the entire financial system.
The financial watchdog also ordered local lenders to set aside reserves for potential losses associated with PF lending, which were extended to builders based on expected cash inflows after construction projects were completed.
However, an FSS official said that the health of local lenders was considered good, as their bad loan ratios were well below those of other developed nations.
According to the FSS, U.S. commercial banks posted 5.6 percent ration for problem loans, while Japan’s nonperforming loan ratio notched 2.5 percent as of March 2010.
The local banks booked 12.8 trillion won as new bad loans in the second quarter, cleaning up 6.1 trillion won of bad loans via sales, write-offs and reimbursements.