Korea banks write off $5.8B in bad loans as delinquencies rise

Feb. 2 (Asia Today) — South Korea’s five largest commercial banks wrote off or sold more than 8 trillion won (about $5.8 billion) in nonperforming loans last year, but rising delinquency rates are heightening concerns about asset quality as high interest rates persist.

Financial industry data showed KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH NongHyup Bank disposed of nonperforming loans totaling 8.46 trillion won (about $5.8 billion) in 2025. That was up 19.2% from 7.10 trillion won (about $4.9 billion) in 2024 and nearly quadruple the 2022 level of 2.30 trillion won (about $1.6 billion).

Banks typically classify loans delinquent for more than three months as difficult to recover and treat them as nonperforming loans, or NPLs. When recovery is considered highly unlikely, lenders either recognize the loss and remove the loan from their books or sell the claim to outside firms at a discount. Either approach produces losses, making NPL disposals a last-resort measure to defend soundness indicators.

Industry officials attributed the increase to a growing number of borrowers struggling to meet repayments amid prolonged high interest rates and a slower recovery. The ending of pandemic-era repayment deferrals and weakness in key sectors such as petrochemicals and steel also contributed to more marginal firms, the report said. Analysts also pointed to the impact of the New Leap Fund, a state-backed “bad bank” vehicle that began purchasing long-term delinquent loans from private financial institutions in November.

Even so, the pace of new troubled loans appears to be outstripping the pace of resolution.

The Financial Supervisory Service said the delinquency rate for won-denominated loans at domestic banks stood at 0.60% as of November, up 0.08 percentage points from a year earlier and the highest since November 2018. The average delinquency rate from January through November was 0.57%, up from the prior year’s annual average of 0.47%. The ratio of nonperforming loans to total loans also rose to 0.57% in the third quarter, up 0.04 percentage points year-on-year.

Pressure could intensify this year as borrowing costs climb. Fixed-rate mortgage rates at the five major banks, based on five-year bank bonds, ranged from 3.94% to 6.24% per year as of Jan. 2. By the end of the month, they had risen to 4.25% to 6.60%, lifting the bottom of the range by 0.31 percentage points in a month. The Bank of Korea also said corporate loan rates rose 0.06 percentage points in December from the prior month to 4.16%.

In a report on NPL market trends published last month, Samil PwC said the prolonged U.S.-South Korea interest rate gap and limited room for rate cuts due to exchange-rate pressure were weighing on the recovery, adding that rising delinquency could persist alongside ongoing default risks among marginal borrowers.

A senior official at a major commercial bank said expanded NPL sales and write-offs show lenders are actively addressing problem loans, but also indicate an increase in delinquencies that are difficult to normalize. The official said banks would focus on managing asset quality to keep late payments from progressing into the sale or disposal stage.

— Reported by Asia Today; translated by UPI

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Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260203010000740