By Kang Seung-woo
The Korea Development Bank (KDB), Woori Bank and the National Agricultural Cooperative Federation (Nonghyup) have been hit hard by the sluggish housing market, with their bad loan ratios reaching a six-year high due to delinquency in their project financing (PF) loans.
According to a report by the Financial Supervisory Service (FSS), Tuesday, the bad loan ratio of the state-run KDB was the highest among local banks at 4.17 percent as of the end of September, well above the industry average of 2.32 percent.
Woori came in second with 3.85 percent, followed by Nonghyup (2.96 percent), Kwangju Bank (2.79 percent) and Kookmin (2.3 percent) among major local lenders.
The bad loan ratio refers to the portion of loans overdue for more than three months.
The industry average eclipsed the previous record of 1.94 percent in June by 0.38 percentage points and the combined figure is the highest since the first quarter of 2004, when it tallied 2.5 percent. Non-performing loans totaled 30.3 trillion won, up 4.7 trillion from three months earlier, and sour PF loans represented 72 percent, or 3.4 trillion won, in the overall loan increase.
The FSS said that the sharp rise came as PF loans soured at a rapid pace through the third quarter of the year.
It also said that aggressive corporate restructuring programs have affected the increase.
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, the FSS said that the real estate-related lending will not hit banks’ financial soundness hard due to its small portion of the total loans.
“The sharp growth in (property) project financing loans will have only limited impact on banks' financial health, given lenders' loss-absorbing abilities as well as their small proportion of total lending,” an official of the financial watchdog said.