The non-performing loans of the four major financial groups are approaching 14 trillion won. This reflects the increase in households and corporations unable to repay their debts on time due to prolonged high interest rates and economic downturns. While the banks under the holding companies wrote off over 5 trillion won in non-performing loans last year, the rising trend in arrears has accelerated this year. Arrears are expected to soar further after the expiration of the loan maturity extension measures for small and medium-sized enterprises and small businesses affected by COVID-19 in September.
According to the financial sector on the 26th, the total aggregates of fixed principal and interest loans of the four major financial groups (KB, Shinhan, Hana, Woori) at the end of last year amounted to 13.647 trillion won, representing a 28% increase compared to 10.670 trillion won at the end of 2023. This quantity of fixed principal and interest loans in the four major financial groups has more than doubled compared to 6.439 trillion won in 2021.
Fixed principal and interest loans refer to non-performing loans (NPLs) where the principal and interest repayment has been in arrears for more than three months. Loans are categorized into five stages: 'normal, watch, fixed, doubtful recovery, and estimated loss.' Financial companies classify loans marked as fixed, doubtful recovery, and estimated loss as having a high likelihood of non-recovery and separately manage them as 'fixed principal and interest loans.' Among financial groups, KB Financial has the highest amount of fixed principal and interest loans at 5.302 trillion won, followed by Shinhan Financial (3.562 trillion won), Hana Financial (2.572 trillion won), and Woori Financial (2.211 trillion won).
The proportion of fixed principal and interest loans in total loans is also rapidly increasing. KB Financial's fixed principal and interest loan ratio was 0.7% at the end of 2021 and 2022, which rose to 1.1% at the end of last year. Shinhan Financial recorded 0.8%, Hana Financial 0.62%, and Woori Financial 0.57%. While the fixed principal and interest loan ratios are around 1%, indicating a stable level, the ongoing upward trend is concerning.
The outlook for this year is also challenging. As economic recovery is delayed, the repayment ability of individuals and corporations is weakening, leading to a faster increase in arrears. In November last year, the domestic bank won loan arrears rate was 0.52%, marking the highest level in six years. The ending of the loan maturity extension measures for small and medium-sized enterprises and small businesses affected by COVID-19 could also have significant repercussions. According to data received by Representative Kang Min-guk from the Financial Services Commission, as of the end of March last year, there were 286,100 consumers utilizing the COVID-19 loan maturity extension program, with a loan balance of 57.92 trillion won. Upon the expiration of the loan maturity, the principal must be repaid immediately, which could lead to arrears.
Financial institutions, including banks, are expected to write off significant non-performing loans this year to manage arrears. Banks erase or sell at a low price the non-performing loans classified as having a significantly low likelihood of recovery (write-off or sale) from their books. The four major banks under the four major financial groups (KB Kookmin, Shinhan, Hana, and Woori Banks) reported an annual volume of write-offs and sales of non-performing loans totaling 5.2996 trillion won last year, which is a 30% increase compared to the previous year. This marks the first time that the annual volume of non-performing loan write-offs and sales by the four major banks has surpassed 5 trillion won. A source from a commercial bank stated, "Starting from the first quarter, talk of a crisis in arrears has arisen," adding, "Even though we are writing off and selling non-performing loans at the end of each quarter, managing arrears is proving difficult."