Korean banks' bad loan ratio falls below 1% in Q3 for first time in a decade

Shipping corporates are making good headway in the crackdown.

The nonperforming loan (NPL) ratio of South Korean banks continued to drop to 0.96% in Q3 to mark the first time in ten years that the ratio fell below 1%, reports The Korea Herald. 

The value of NPLs also decreased 8.2% YoY to $16.03b (KRW17.8t) in Q3.The latest reading represents the lowest level since September 2008 when the bad loan ratio hit 0.82% as corporate restructuring efforts and stricter lending rules made headway in banking sector’s crackdown against sour loans.

Also read: Korea's shrinking bad loan record at risk as SOHO loans turn sour

"Conglomerates (particularly in the shipbuilding and shipping industries) are in the process of wrapping up their restructuring measures. Increased home-backed mortgages also resulted in a decline in NPLs in the third quarter," the Financial Supervisory Service said in a statement.

Also read: South Korea cracks down on bank lending to cool housing market

The efforts of state-run Korea Asset Management Corporation (KAMCO) which is tasked with cleaning up operations, luring major international players eyeing Korean distressed assets and providing support for corporate restructuring through loans, debt-equity swaps and payment guarantees.

“The development of KAMCO was critical to Korea’s success in resolving NPLs as KAMCO played a market‑making role by minimising information asymmetries and the lack of creditor coordination,” accounting firm Deloitte said in an earlier report.

The majority of key players in Korea’s banking sector have demonstrated a downward trend in NPL ratios over the past five years with Shinhan Financial Group, KB Financial Group, Hana Financial Group and Woori Bank all reporting NPL ratios of below 0.8% in 2017.