Regional banks struggle with soaring loan delinquency rates amid economic downturn

The logos of Busan Bank and its parent company BNK Financial Group are seen outside the group's headquarters in Busan in this undated photo. Yonhap

Commercial banks that primarily serve customers in provincial areas are grappling with higher rates of repayments that are past due as the ongoing economic downturn hits regional economies harder.

According to the Bank of Korea (BOK) on Wednesday, the delinquency rate of loans taken by households from these banks in Busan, Daegu, Gwangju and Jeju Island reached an all-time high in January.

The figure hit 0.45 percent in Busan, up from 0.29 percent two years ago. Over the two-year period, the rates shot up from 0.26 percent to 0.5 percent in Daegu and from 0.39 percent to 0.58 percent in Gwangju.

The delinquency rate was most severe on Jeju Island, where it more than doubled from 0.49 percent to 1.19 percent in the 2023-25 period.

The regional lenders’ increase in delinquency rate also aggravated their respective financial holding companies’ business conditions, as nearly 100 percent of their profits come from banking services.

For instance, the delinquency rate for Busan-headquartered BNK Financial Group went up from 0.6 percent in 2023 to 0.94 percent in 2024.

The rate climbed from 0.93 percent to 1.13 percent for Daegu-headquartered iM Financial Group.

Shin Se-don, professor emeritus of economics at Sookmyung Women’s University, said that economic risks are heightened “at a more serious level” in rural areas than in the Seoul metropolitan area.

He noted sluggish consumer spending, dwindling population, fewer new jobs and an increase in the number of unsold homes are widely witnessed in regional economies.

“Accordingly, province-based banks are more vulnerable than larger competitors headquartered in Seoul when it comes to economic challenges,” the professor said.

By region, a decline in spending by tourists was largely attributable the failure to repay on time among households on Jeju Island.

“Tourism is a key growth factor on the island, and households have trouble earning money as visitors refrain from spending,” a PR officer at a regional bank said.

Busan, the country’s second-largest city, is struggling with a shrinking population and real estate downturn as younger generations leave for Seoul to find jobs.

A Construction Policy Research Institute study showed that Busan has more than 110,000 vacant homes — the highest among the country's major cities.