Bank loans experiencing a persistent rise in delinquencies throughout May.
In a recent report by the Financial Supervisory Service (FSS), preliminary data revealed a consecutive rise in delinquency rates on loans extended by local banks in South Korea in May 2021.
The delinquency rate on household loans, measured in won-denominated loans, increased to 0.47% in May, an increase of 0.04 percentage point from the previous month. This trend was also observed in corporate loans, with the delinquency rate reaching 0.77%, an increase of 0.09 percentage point from April.
The increase in newly delinquent loans was significant, amounting to approximately $2.56 billion, as compared to $2.9 trillion won in April. The total amount of write-offs of bad loans remained relatively stable at 1.7 trillion won in May.
The FSS report highlighted several factors contributing to the rise in delinquency rates. Young self-employed people in their 20s and 30s showed significantly higher business closure rates, indicating difficulties in sustaining their ventures. This group's closures directly reduced their financial assets and increased delinquency rates, with delinquency amounts higher among closed franchisees compared to normal ones.
Additionally, youth employment declined continuously for 32 months until mid-2024, reducing stable income prospects and increasing defaults, especially on student loans, which surged to their highest in nine years by 2024.
Banks also imposed stricter lending standards and higher interest rates on foreigners, reflecting concerns about higher loan recovery risk. The delinquency rate for loans issued to foreigners by a major regional bank stayed elevated at 2.2% in early 2025 compared to 1.52% overall, indicating a segment with higher default risks that impacts overall delinquency dynamics.
Savings banks faced rapidly rising non-performing loan (NPL) ratios, from 3.4% at end-2021 to 11.5% in mid-2024, likely reflecting increased difficulties in real estate project financing and consumer credit repayment during this period.
The increase in household loans in 2025, driven mainly by housing transaction activity in the Seoul metropolitan area, associated with temporary regulatory easing and expectations around interest rate cuts, also contributed to the repayment challenges impacting delinquency rates.
In conclusion, the rise in delinquency rates in May 2021 was driven by the compounded effects of youth employment challenges and rising self-employed business failures, targeted lending risk to foreigners, and pressures in real estate-related loans and household debt growth. These factors together strained borrowers’ repayment capacity, leading to increased loan delinquencies among local banks in South Korea during that time. The FSS will continue to monitor these trends and provide updates as more data becomes available.
The increase in loan delinquency rates observed in the banking-and-insurance sector, particularly on household and corporate loans, can be attributed to the challenges faced by young self-employed individuals in South Korea, who have shown higher business closure rates and subsequent non-repayment of loans. Additionally, stricter financing standards and higher interest rates imposed on foreigners have contributed to a segment with higher default risks, also impacting overall delinquency dynamics in the industry and finance business.
