South Korean Banks Face $2 Billion in Unrecoverable Loans in Q1

Seoul, May 3 (IANS) South Korea's four major financial groups have classified approximately 3 trillion won (around $2 billion) worth of loans as 'estimated loss' in the first quarter, according to financial sector data released on Sunday.

A total of 2.9 trillion won of loans held by these groups were deemed largely unrecoverable as of the end of March, marking a 5.8 percent increase from the same period last year. The four financiers involved are KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group, as reported by Yonhap news agency.

Under the financial regulatory guidelines, South Korean banks categorize their loans into five levels based on asset soundness: normal, precautionary, substandard, doubtful, and estimated loss. The 'estimated loss' category is the most severe, indicating that banks have almost no hope of recovering the funds.

The increase in unrecoverable loans is attributed to several factors. An official from one of the commercial banks noted that the burden of high interest rates has weakened the repayment capacity of self-employed individuals and small and medium-sized business owners. Many of these individuals took out loans when interest rates were lower, but the current high rates have made it difficult for them to meet their financial obligations.

Additionally, market watchers have pointed out that the war in the Middle East has had a significant impact. The rise in oil prices and inflation caused by the conflict has added to the economic strain, particularly in the local real estate market. This has led to more real estate project financing loans becoming delinquent.

By company, KB Financial Group's exposure to non-performing loans increased by 27.2 percent from the same period last year. Hana Financial Group saw a 30.3 percent jump in its non-performing loans, while Woori Financial Group's non-performing loans rose by 12.4 percent. In contrast, Shinhan Financial Group experienced a 20.1 percent decrease in its 'estimated losses' compared to the previous year.

These figures underscore the challenging economic environment faced by South Korean banks and highlight the need for prudent risk management and financial strategies to mitigate further losses.