The household loan delinquency rate at Korea's five major banks has climbed to its highest level in a decade. As rising interest rates increase the burden of principal and interest repayments, concerns are growing that delinquencies could increase further, centered on credit loans, amid a correction in domestic stock markets.
According to the financial industry on the 26th, the simple average household loan delinquency rate at the five major banks — KB, Shinhan, Hana, Woori, and NH NongHyup — stood at 0.33% as of the end of June, up 0.01 percentage point from the end of the first quarter (0.32%). This is the highest level in about 10 years, since the end of the first quarter of 2016 (0.36%). The average delinquency rate, which was 0.30% at the end of last year, rose to 0.32% at the end of the first quarter and 0.33% at the end of the second quarter, marking two consecutive quarters of increases.
Kookmin Bank's mortgage delinquency rate as of the end of June was 0.24%, while its general household loan delinquency rate, which includes credit loans, was 0.31%. Shinhan Bank's mortgage delinquency rate was 0.19%, but its overall household loan delinquency rate including such loans was 0.28%, higher by 0.09 percentage point. This is why concerns are emerging that, amid a recent surge in demand for "debt-financed investment," the risk of defaults on credit loans — which include negative-balance overdraft accounts — could grow further if domestic stock markets enter a correction phase.
By bank, Hana Bank's household loan delinquency rate rose 0.04 percentage point from 0.28% at the end of last year to 0.32% at the end of June this year, a record high since data collection began. NH NongHyup Bank's rate was 0.48%, the highest in 12 years since the end of the second quarter of 2014 (0.54%). Woori Bank's rate rose from 0.28% to 0.31%, and Shinhan Bank's rose from 0.24% to 0.25%. Kookmin Bank's rate stood at 0.27%, unchanged from the end of last year.
As commercial banks raise mortgage rates following the base rate hike, borrowers' interest repayment burdens are expected to grow further. As of the 24th, the fixed and hybrid mortgage rates at the five major banks ranged from 4.84% to 7.57% per year. Compared with 3.93% to 6.23% per year at the end of last year, the upper end has jumped 1.34 percentage points and the lower end 0.91 percentage point this year.
With the Bank of Korea (BOK) seen as likely to raise its base rate further next month, some observers predict the upper end of mortgage rates could exceed 8% within the year. "As the interest burden from the base rate hike and the economic slowdown overlap, households' repayment capacity has weakened overall," a commercial bank official said.
