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Bad loans at 4 major financial groups surge amid ‘inclusive finance’ drive

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By Lee Kyung-min
  • Published KST
  • Updated KST
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Bad loans at the country’s four largest financial groups have increased at record pace over the past year as a government-led push for “inclusive” and “productive” finance collides with an economic slowdown and weakening asset quality, according to industry officials Tuesday.

Critics say the seemingly well-intentioned policy is amplifying credit risk in a weakening economy, long under strain due to years of sluggish postpandemic economy.

With bad loans on the rise, financial groups’ profits could be undermined by growing credit risk management concerns.

According to financial market data, KB Kookmin, Shinhan, Hana and Woori banks posted a combined net profit of nearly 14 trillion won ($10.4 billion) last year.

This was the highest on record, with each lender earning more than 3 trillion won.

However, as of the fourth quarter, precautionary loans at the four institutions surpassed 7.9 trillion won, up 11 percent from a year earlier and nearly 49 percent compared with 2021. Those loans are between one and three months late.

Similarly, non-performing loans that are overdue by more than three months totaled 4.55 trillion won, up 14 percent from a year earlier and the highest level since 2021.

Many lenders extended loans at low rates during the pandemic, and some of them are showing signs of stress, said Lee In-ho, a former professor of economics at Seoul National University.

Combined with sluggish economic recovery, this trend is amplifying concerns over extending higher-risk corporate lending, a source of declining financial soundness, according to Lee.

“Financial groups are right to be concerned about the speed at which bad loans are growing in the context of their profit being eroded,” he added.

The Lee Jae Myung administration’s inclusive finance drive is playing a part in saddling lenders with bad debt, the former professor said. “The government is pushing for more loan opportunities for relatively weak-credit, low-income borrowers, but lenders cannot ignore the risk management considerations knowing that the consequence will be too big to handle.”