The four major financial holding companies (KB, Shinhan, Hana, Woori) posted a record profit of more than 15 trillion won through the third quarter this year, but asset soundness appears to be deteriorating rapidly. Delinquencies among vulnerable borrowers, such as self-employed people and small and midsize enterprises, have increased due to prolonged high interest rates and an economic slowdown, swelling bad loans like a snowball.
According to the financial sector on the 9th, substandard loans (arrears of 1 to 3 months) at the four major financial holding companies amounted to 18.349 trillion won as of the end of the third quarter this year. It is the highest since aggregate statistics began in 2019. Banks classify loans they have extended by soundness into normal, substandard, doubtful, loss given concern, and estimated loss. Nonperforming loans (doubtful, loss given concern, estimated loss) include loans with a markedly low possibility of recovery or those for which loss treatment is unavoidable.
Nonperforming loans (NPLs; arrears of 3 months or more) at the four major financial groups stood at 9.2682 trillion won, down slightly from the previous quarter (9.3042 trillion won) but up 18% from the same period a year earlier (7.8651 trillion won). The NPL ratio (0.72%) to total loans remained high with little change from the first and second quarters this year (0.74%).
In contrast, the NPL coverage ratio (nonperforming loans to allowance for loan losses balance) of the four major financial holding companies was 123.1%, plunging 18.5 percentage points from 141.6% at the end of the third quarter last year to a record low. The financial holding companies set aside record-high provisions and actively pursued write-offs and sales of bad debt to prevent the spread of insolvency, but it was not enough.
During the first through third quarters this year, the four major financial holding companies accumulated 5.6296 trillion won in provisions, the largest on a cumulative basis for the third quarter since 2019. The scale of write-offs and sales of bad debt was also 4.6461 trillion won, the largest since 2018.