- Published 2026.10.23 09:10
Korean banks' won loan delinquency rate reaches 0.69% in August
Bad loans spread from SMEs to large companies and household loans
Need to verify bad debt disposal capacity amid loan volume regulations
Bank loan delinquency rates have surged to their highest level in 10 years. According to the 'August 2026 domestic bank won loan delinquency rate status (preliminary)' released by the Financial Supervisory Service on Oct. 23, the won loan delinquency rate (based on principal and interest overdue by one month or more) as of the end of August was provisionally tallied at 0.69%. This is up 0.06 percentage point from the previous month and 0.08 percentage point from August 2025. It marked the highest level in 9 years and 10 months since October 2016 (0.81%).
Financial authorities assessed that "it is below the long-term average of 0.78% for the 10 years before COVID-19, so it is sufficiently manageable in the mid-to-long term." However, the market points out that this is a 'statistical illusion' that overlooks the fact that the denominator, total loan balance, has increased significantly through the low-interest rate period. Even if the ratio itself is below the long-term average, the absolute amount of bad loans actually accumulating is enormous.
In fact, the inflow speed of delinquent loans is far outpacing the speed of removing them from the books. New delinquencies in August reached 3 trillion won (about $2.2 billion). This is down 200 billion won (about $148 million) from the previous month (3.2 trillion won (about $2.4 billion)), but it remained in the 3 trillion won range for two consecutive months. In contrast, the size of delinquent loans that banks cleaned up through sales or write-offs was only 1.5 trillion won (about $1.1 billion). This means that newly inflowing bad loans are more than double the banks' own absorption capacity.
By sector, bad loans among small self-employed business owners and SMEs appear to have reached their limit. As of the end of August, the SME loan delinquency rate recorded 1.00%, up 0.09 percentage point from the previous month. In detail, the delinquency rate for small and medium-sized corporations rose to 1.10%, and the delinquency rate for individual business owners also worsened to 0.86%. This means that vulnerable borrowers are unable to withstand accumulated high interest rates and domestic demand slump and are falling into a chain of insolvencies.
The spread of bad loans to large companies and household loans is also evident. The delinquency rate for large corporate loans, which had been classified as prime credit, rose 0.03 percentage point from the previous month to 0.39% at the end of August. This is more than double the figure from August 2025 (0.15%), largely due to the fact that loans whose principal and interest payments stopped following applications for corporate rehabilitation procedures such as workouts by large corporate affiliates in July were incorporated en masse as new delinquencies.
The household loan delinquency rate also rose 0.03 percentage point from the previous month to 0.45%. While the mortgage loan delinquency rate recorded 0.31%, the delinquency rate for other household loans such as unsecured credit loans soared to 0.91%. This is a signal that marginal borrowers who used unsecured credit loans as a last resort to cover living expenses are collapsing without being able to repay principal and interest.
The FSS plans to ease borrowers' repayment burden through inspections under the Personal Debtor Protection Act and active encouragement of debt restructuring. However, criticism follows that measures centered on maturity extension and repayment deferral are merely stopgap measures that delay the confirmation of bad loans. In particular, while the denominator is shrinking due to the loan volume regulation stance such as household loan suppression, if additional corporate restructuring begins in earnest, the delinquency rate indicator could instantly break through the long-term average that authorities consider the Maginot Line.
With total credit balance, the denominator, stagnant due to loan suppression, if new delinquencies continue to flow in, soundness indicators will inevitably deteriorate more steeply. It is time to conservatively review banks' loan-loss provision levels and prove their bad debt disposal capacity in preparation for additional bad loan bombs.
(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 9, 2026.)
※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.
