Bad loans at South Korean banks dip to 1.18% in Q1

Improved profits also boosted capital adequacy.

South Korea made headway in denting its distressed debt as non-performing loan ratio dipped to a stable 1.18% in Q1, according the Financial Supervisory Service. 

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Bad loans extended to businesses dipped from $18.06b (19.4t) in Q4 to $17.97b (19.3t won) as of end-March. Stressed assets in Korean banks are generally concentrated in the business sector particularly in the construction, steel, shipping and other transportation industries.

On the other hand, overdue household loans stood unchanged at $1.49b (1.6t won) as of end-March.

“The development of Korea Asset Management Corporation (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.

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Korean banks also witnessed enhanced capital adequacy ratios which clocked in at a stable 15.34% as of end March amidst a slight improvement in profitability.

Used as a key barometer of financial health, capital adequacy ratios measure the proportion of a bank’s capital to its risk-weighted credit.

Citibank Korea Inc. posted the highest capital ratio of 18.94%. The capital adequacy ratio of two Internet-only banks -- K-Bank and Kakao Bank -- stood at 13.48% and 10.96%, respectively.

Photo from Fleetham - Own work, CC BY-SA 4.0