Delinquency Rate of Household and Small Company Loans is on the Rise Again

The number of households and corporations which fail to pay interest on time is increasing due to the prolonged economic downturn.

Those in the low-income brackets and small companies, in particular, are increasingly delaying their payments on loans, causing social unrest in the country.

The bank industry said on Wednesday that the delinquency rate of household loans in Kookmin Bank remained at 2.3 percent late last year but has increased to 2.6 percent as of the end of February, increasing by 0.3 percent.

The president of Kookmin bank, Kim Jung-tae, has announced it is facing an emergency situation, setting the “war on delinquency” on its highest agenda.

The delinquency rate of household loans at Woori Bank posted 1.52 percent late last year, rising to 1.9 percent at the end of January and further increased to 2.07 percent as of the end of last month.

The rate at Shinhan Bank was 1.06 percent at the end of last December, up to 1.32 percent at the end of February, an increase of 0.26 percent. Hana Bank recorded a 1.09 percent delinquency rate at the end of December, up to 1.19 percent as of late February, increasing by 0.1 percent.

As the delinquency rate of household loans is climbing, the bank industry has adjusted its expected time of the recovery of domestic consumption occurring from the third quarter to next year.

“Due to weak consumer spending and growing gaps between the haves and have-nots, those in low-income brackets are increasingly facing difficult times, failing to pay interests on their loans in time,” said commercial bank interested, adding, “To properly manage the delinquency rate of household loans is of importance more so than ever since the prospect for recovery of domestic consumption is bleak.”

The delinquency rate of loans for small corporations, which is heavily hit by growing shortage of raw materials, is also increasing.

Woori Bank recorded its delinquency rate of small corporate loans as 2.74 percent at the end of January, up to 2.93 percent as of the end of February, increasing by 0.19 percent, and the Industrial Bank of Korea remained at the rate of 1.8 percent, increased to 2.75 percent during the same period, climbing by 0.95 percent.

Kookmin Bank recorded its delinquency rate of small enterprise loans as 2.9 percent as of late last year, up to 3.2 percent as of last January, with bad loans of small companies, such as SOHO (Small Office Home Office) climbing.

Experts have noted that increasing non-performing loans for medium and small companies, coupled with climbing household loans, are the primary factors for financial woes.

A corporate loan officer from the nation’s major bank said, “The situation is not serious yet, but we plan to apply strict standards for issuing new loans because the delinquency rate of medium and small companies is continuously increasing,” adding, “Rising bad loans of medium and small companies and following unstable credit status could not only strike a blow at banking business but defer the creation of jobs.”

Chang-Won Kim changkim@donga.com