hankyoreh

(Getty Images Bank)

Corporate and household loan debts are increasing in Korea as commercial banks are unable to collect even interest. Corporate loans saw a greater growth in loans than households.

According to third-quarter data released by South Korea’s four largest banks — KB Kookmin, Shinhan, KEB Hana, and Woori — on Monday, outstanding debt from nonperforming loans amounted to 2.89 trillion won (US$2.25 billion) as of the end of the third quarter of this year, a whopping 27.29% increase from 2.27 trillion won (US$1.77 billion) as of the end of 2022.

The total amount of loans issued by the four banks increased by 2.96% in the same period, from 1.3 quadrillion won (US$1.01 trillion) to 1.33 quadrillion won (US$1.04 trillion). Nonperforming loans comprised 0.21% of this debt, up from 0.17%.

Nonperforming loans refer to loans issued to firms that have since gone bankrupt, loans issued to debtors unable to make payments, and loans undergoing refinancing. A nonperforming loan is classified as such when it generates no profit from interest for three months or longer.

Both nonperforming loans and substandard loans are metrics used to determine bank solvency, but they differ in whether they focus on the present or the future. Nonperforming loans are determined by whether or not a loan generates profit from interest at present. Substandard loans are determined by a debtor’s capacity to repay in the future, meaning a substandard loan is not a nonperforming loan if it generates profit from interest at present.

A loan that has not generated profit from interest for less than three months is still technically a nonperforming loan, since it does not generate interest at the current moment. A substandard loan is not determined by the borrower’s current ability to repay interest but by metrics relating to the borrower’s future credit scores and ability to repay in the future.

Corporate debt comprised a much greater portion of nonperforming loans than household debt. Corporate debt related to nonperforming loans issued by the four major banks in the third quarter increased to 1.98 trillion won (US$1.54 billion) from 1.53 trillion won (US$1.2 billion) in the final quarter of 2022, an increase of 29%. One bank even recorded an increase of 46.3%. Conversely, household debt related to nonperforming loans increased to 923.4 billion won (US$718.63 million) in the same period from 746.2 billion won (US$580 million), an increase of 23.7%.

There was also a sharp increase in the number of firms that filed for bankruptcy. According to monthly statistics reports issued by Korea’s court system, there were 1,213 bankruptcy claims filed throughout the country as of the third quarter of the year, a 64.36% increase from the 738 filed in the same period last year.

By Yi Ju-been, staff reporter

Please direct questions or comments to [english@hani.co.kr]