Corporate loan defaults surge on business slump

SEOUL, Feb. 11 (Yonhap) -- Local companies' defaults on bank loans jumped in
January as smaller firms took the brunt of a sharp economic slowdown, the
financial watchdog said Wednesday.
The overall delinquency rate of Korean currency-based bank corporate loans rose
to 2.04 percent last month from 1.46 percent in December, according to the
Financial Supervisory Service (FSS).
The watchdog attributed the surge to more defaults by small and medium
enterprises (SME) struggling to secure cash amid deteriorating business
conditions.
The default rate of bank loans to SMEs stood at 2.36 percent in January, up from
1.7 percent in December and the highest level since 2.44 percent in August 2005.
The delinquency rate of such lending is widely expected to spike later on as the
economy is quickly slipping into a recession due to tumbling exports and sluggish
domestic demand.
According to the FSS, the ratio of 18 local lenders' nonperforming loans to total
lending reached 1.11 percent in December, up from 0.82 percent three months
earlier. The ratio for lending to SMEs rose 0.56 percentage point to 1.9 percent.
Nonperforming loans, or bad loans, refer to those that are overdue for three
months or more. Bank bad loans totaled 14.3 trillion won in December, up from
10.4 trillion won in September, the watchdog said.
Local banks are under conflicting pressure to improve their financial health
while extending more loans to more riskier SMEs.
In mid-January, local banks decided to end support to two ailing companies and
reschedule debts at 11 builders and three shipbuilders to keep potential defaults
from rattling the slumping economy.
Meanwhile, local banks and non-bank lending institutions had a combined 29.1
trillion won (US$20.8 billion) in overdue loans at the end of last year, up 29
percent from a year earlier.
Experts expect an increase in loan defaults in coming months. "Overdue loans are
expected to increase further as the economy is sharply losing ground and the
corporate revamp is in the process," said Lee Hyeok-jae, an analyst at IBK
Securities Co.
sooyeon@yna.co.kr
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