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| Banks' ATMs are lined up in downtown Seoul in this March 2022 file photo. Newsis |
By Lee Yeon-woo
Banks are offloading bad debts due to soaring delinquency rates, signaling an urgent need for enhanced financial soundness management. In the first half of this year alone, the top five banks disposed of 2.2 trillion won ($1.7 billion) in bad loans, driven by high policy rates and economic uncertainties.
According to financial sources, Tuesday, five major banks here ― KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup ― disposed of non-performing loans (NPL) amounting to 2.2 trillion won through writeoffs or sales in the first half of this year.
The amount is more than double that of the same period last year, matching the total volume for 2022.
Typically, banks classify loans that have been in arrears for more than three months as NPLs. When the likelihood of repayment decreases significantly, these loans are regarded as lost assets. Banks either write off these loans entirely from their balance sheet or dispose of them by selling them at a discounted price. While this process reduces banks' assets, it also help to lower delinquency and NPL rates.
With financial indicators continuing to deteriorate this year, it is understood as a more aggressive management strategy adopted by the banks.
In the second quarter of this year alone, NPLs worth 1.37 trillion won were sold, marking a 58 percent increase from the first quarter.
This large-scale sell-off has led to a slight decrease in bank delinquency and NPL rates. As of June, the average delinquency rates of the five banks dropped to 0.29 percent from 0.33 percent the previous month. NPL rates decreased to 0.25 percent from 0.3 percent during the same period.
Despite the decreases, indicators reveal a significant deterioration in the banks' financial soundness compared to a year ago. Last June, the average delinquency and NPL rates were 0.17 percent and 0.22 percent, respectively.
Concerns are mounting as delinquency rates are expected to rise further in the second half of this year.
"Delinquency rates among small and medium-sized businesses and the self-employed are on the rise due to the economic downturn. Additionally, the government's relief program for the self-employed is set to end in September, increasing the risk of bank insolvency," an official from one of the top five banks told The Korea Times.
"The most concerning part is that delinquency rates among small and medium-sized businesses, including the self-employed, are increasing across the board, not just in specific companies or industries," another official added.
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