Bad loans at Korean banks rose to 18.9 trillion won at the end of June, according to Financial Supervisory Service data reported on September 2. The ratio of nonperforming loans reached 0.63%, up 0.03 percentage point from the end of March. Nonperforming loans generally refer to credit that has been overdue for at least three months or is otherwise classified as seriously impaired.
The increase was driven by worsening corporate credit quality as weaker business conditions squeezed liquidity. The reported stock of bad loans rose by 1.2 trillion won during the quarter, and corporate-loan problem assets reached their highest level in more than seven years. That does not by itself signal a banking crisis, but it shows that more borrowers are having difficulty meeting obligations.
Corporate credit is the pressure point
The next question is whether the deterioration stays concentrated in vulnerable companies or spreads further through the loan book. A sustained rise can force banks to increase provisions and become more cautious about new lending, which in turn can make financing harder for companies already under pressure. The direction of corporate delinquencies in the next reporting period will therefore matter.