Industrial Bank of Korea (IBK)'s loan arrears rate has topped 1%, and it will sell about 1 trillion won in nonperforming loans in the first half of next year. That is similar to the amount of nonperforming loans sold through the third quarter of this year.
According to the financial sector on the 24th, Industrial Bank of Korea (IBK) is selecting an advisor for asset valuation after deciding to sell about 1 trillion won in nonperforming loans in the first half of next year. The advisor conducts due diligence on the nonperforming loans to be sold and prepares borrower-by-borrower evaluation reports before providing asset valuation advice. Banks typically hire nonperforming loan valuation advisors to set higher prices for the loans.
Industrial Bank of Korea (IBK) sold about 1.1 trillion won in nonperforming loans through the third quarter of this year. The sale volume planned for the first half of next year is similar to the cumulative sales through the third quarter of this year, meaning nonperforming loans are piling up quickly. Industrial Bank of Korea (IBK) is additionally selling nonperforming loans depending on the arrears situation, so the actual sale size could be larger. Industrial Bank of Korea (IBK)'s annual nonperforming loan sales this year are estimated at about 1.7 trillion won.
Because Industrial Bank of Korea (IBK)'s loans to small and midsize enterprises account for 82.9% of total credit (as of the third quarter), it is heavily affected by an economic downturn. Industrial Bank of Korea (IBK)'s loan arrears rate in the third quarter of this year was 1%, the highest since the first quarter of 2009 (1.02%) during the global financial crisis. The arrears rate on corporate loans was 1.03%, the highest in 15 years since the third quarter of 2010 (1.08%). This indicates that more small and midsize enterprises are failing to repay borrowed money as sluggish domestic demand persists.
Typically, when banks' loan arrears rates exceed 1%, there is concern about a serious risk to asset quality. With the net interest margin—the amount remaining after subtracting interest paid on deposits from interest earned on loans—around 1%, it is difficult to turn a profit if the loan arrears rate surpasses 1%.