Bank loan delinquency hits 6-year high as more SMEs struggle to stay afloat

Lease signs are posted on the glass facade of a building in Seoul, February 25. Yonhap

The loan delinquency rate at Korean banks has soared to its highest level in more than six years, data showed Friday. This increase highlights the growing financial strain on small businesses and the self-employed, driven by weakening domestic demand and the burden of high interest rates.

According to data released by the Financial Supervisory Service (FSS), the delinquency rate on won-denominated loans — those overdue by one month or more — was 0.58 percent at the end of February.

This marks the highest rate since November 2018, when it was 0.60 percent. The figure is also up 0.05 percentage points from the previous month and 0.07 percentage points from a year earlier.

The increase was driven primarily by corporate loans, particularly those held by small and medium-sized enterprises (SMEs) and the self-employed.

The delinquency rate for corporate loans — including both large firms and SMEs — rose to 0.68 percent, a 0.07 point increase from January.

Among large companies, the rate ticked up by 0.05 points to 0.10 percent, while SME loan delinquencies rose 0.07 points to 0.84 percent. Within the SME sector, small firms saw a particularly elevated rate of 0.9 percent. For self-employed borrowers, the figure reached 0.76 percent.

Meanwhile, the household loan delinquency rate held steady at 0.43 percent. Mortgage delinquencies remained stable at 0.29 percent, while the rate for nonmortgage household loans — including credit loans — rose by 0.05 points to 0.89 percent.

"Loan delinquencies among the self-employed have been increasing for some time due to persistent cash flow issues. What's notable is that delinquencies on SME loans are expected to rise further as business conditions worsen," said Seo Ji-yong, a professor of business administration at Sangmyung University.

"Looking ahead, banks will need to strengthen their risk management. It's concerning that they may reduce support for corporate lending and shift their focus more toward household loans," he added.

An FSS official said, "We will guide banks to maintain adequate loss-absorbing capacity in preparation for a potential increase in credit risk. At the same time, we will strengthen asset quality management through active disposal of delinquent and nonperforming loans."