Local banks’ bad debt ratio up in third quarter

The bad debt ratio for South Korean banks’ household loans rose in the third quarter from three months earlier as the economic slowdown and the slumping property markets spurred fresh loan delinquency, the financial watchdog said Wednesday.

Local banks’ non-performing household loans accounted for 0.67 percent out of their total lending as of the end of September, up 0.11 percentage point from three months earlier, according to the Financial Supervisory Service.

The bad loan ratio for bank mortgage lending gained 0.12 percentage point on-quarter to 0.6 percent. The watchdog said a hike in banks’ bad debt ratio for household lending came mainly because temporary jumps in delinquency of some home loans in May and June were booked as bad debt in the third quarter.

“As new delinquency for household lending has been on the decline since July, the bad debt rate for home loans is not likely to be under high upward pressure,” the FSS said in a statement.

The data came as the government is battling growing household debt, which stood at 876 trillion won ($771.3 billion) as of end-June, spawning concerns that households’ high indebtedness is feared to undercut economic growth.

The FSS said that the bad debt ratio for banks’ total lending reached 1.66 percent as of the end of September, down 0.07 percentage point from the preceding quarter.

Banks’ bad loans reached 22.9 trillion won as of the end of September, down from 23 trillion won at the end of June.

The watchdog said it will advise local banks to strictly classify their assets and continue to push them to make efforts to lower the bad debt ratio at around 1.5 percent by the end of this year. 

(Yonhap News)