The financial authorities will focus on examining the soundness of bank corporate credit this year, centering on real estate and leasing loans. As vacant commercial spaces increased amid the economic downturn, the real estate and leasing arrears rate at commercial banks nearly tripled in two years, and the small and midsize enterprise loan arrears rate hit the highest level in nine years.
According to the financial authorities on the 21st, this year the Financial Supervisory Service plans to review the status of banks' nonperforming loans in real estate and leasing. With the economic slump driving up vacancies in commercial properties, the agency will check whether potential bad debt is accumulating, especially in cyclical sectors such as real estate and leasing.
The real estate and leasing arrears rate at the four major banks (KB Kookmin, Shinhan, Hana, Woori), which averaged 0.1% in the fourth quarter of 2023, rose to an average of 0.27% in the fourth quarter of last year. The small and midsize enterprise loan arrears rate in the fourth quarter of last year was 0.45%, a record high for a fourth quarter in nine years. Small and midsize enterprise loans consist of loans to small and midsize enterprises, self-employed borrowers, and real estate and leasing, with real estate and leasing accounting for about 30%.
Delinquencies in real estate and leasing loans are intertwined with the slump among the self-employed. According to the commercial real estate leasing trend survey for the fourth quarter of last year released on the 29th by the Korea Real Estate Board (REB), the national rental price index fell 0.52% from a year earlier. The rental price index reflects changes in market rents, and rents declined as vacancies increased.
Banks have been cutting or managing related loans conservatively since last year. At Woori Bank, the outstanding loan balance for real estate and leasing fell by 6.4 trillion won in a year, from 42.8955 trillion won at the end of December 2024 to 36.5138 trillion won at the end of last year. Other banks are also continuously checking real estate and leasing arrears rates and applying stricter lending standards.
With no sign of improvement in the commercial real estate market, banks are inclined to refrain as much as possible from new business this year as well. A commercial bank official said, "Unlike the booming residential real estate market, commercial real estate has been in a slump for years. There is also a lot of bad debt, so the stability of collateral has deteriorated significantly."