LENDING & CREDIT | Staff Reporter, Korea

Korea's bad loans shrink as new NPLs stood at $1.59b in Q1

This marks the lowest level since the global financial crisis struck.

Bad loan levels in Korea are on a steady decline as new non-performing loans stood at $1.59b (1.7t won) in the first quarter of 2017 which marks the lowest level since the global financial crisis hit in 2007-08, according to a study from accounting firm Deloitte.

The healthy NPL figures were attributed in part to efforts by state-run Korea Asset Management Corporation (KAMCO) which is tasked with cleaning up operations 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,” Deloitte pointed out, adding that KAMCO was also able to lure major international players looking for distressed assets into the Korean market.

The majority of the key players in the banking sector have shown a downward trend in NPL ratios over the past five years with Shinham Financial Group, KB Financial Group, Hana Financial Group and Woori Bank all reporting NPL ratios of below 0.8% in 2017, and precautionary & below ratios of 1.9% or less.

Also read: Korean banks net income rose 23.9% to $807m in 2017

Only Korean Development Bank posted higher NPL figures with precautionary and below ratios reaching 10.07% in 2017 and NPL ratios 3.56% over the same period.

Bad loans in Korea have been generally concentrated in the business sector particularly in the construction, steel, shipping and other transportation industries. The ratio of NPLs stands at 1.8% for business loans and 0.26% for household loans as of June 2017.

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