South Korea’s five largest banks—KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup—wrote off or sold more than 7 trillion won ($4.8 billion) in bad loans last year, as rising interest rates drove up delinquency rates, according to financial industry data released on Feb. 2.
The five banks disposed of 7.10 trillion won in nonperforming loans through write-offs and asset sales in 2024, marking a 30.2% increase from the 5.45 trillion won recorded the previous year. The total was more than three times the 2.30 trillion won handled in 2022.
Loans overdue by more than three months are classified as substandard or lower. If a bank determines that the likelihood of recovery is significantly low, the debt is written off as uncollectible. These nonperforming assets are either removed from balance sheets through write-offs or sold to asset management firms specializing in distressed debt.
The surge in bad loan disposals last year appears to be driven by a rise in delinquencies, prompting banks to reinforce risk management. Delinquency rates, which had declined during the COVID-19 pandemic in 2020 and 2021, have since returned to levels seen about five years ago. As of November 2024, the nonperforming loan ratio stood at 0.52%, approaching the pre-pandemic level of 0.48% in November 2019.
With economic uncertainty persisting, banks expect delinquency rates to remain elevated this year. The recent pause in U.S. interest rate cuts has also raised concerns that high borrowing costs may persist, leading banks to prioritize financial stability through continued bad loan disposals and other risk management measures.
