Behind Korea's housing-supply push, SME loan delinquency is a hair from its 2016 high

The composition is the story. The gap between corporate and household arrears at domestic banks is now 0.28 percentage point, and it widened by 0.09 point over twelve months, because business credit got worse while household credit did not ^[1][2][4][5]. That is why the headline 0.56% reads calmer than the underlying book: a retail portfolio that is quietly improving is diluting it ^[1][5].

Inside the corporate half, the small end is doing the damage. The Financial Supervisory Service puts small and medium-sized corporations at 0.92%, which it calls the highest since 2016's 0.94% ^[3]. Two hundredths of a point from the worst reading in a decade, while the all-loan rate still sits 0.15 point below its own 2016 equivalent of 0.71% ^[3][4]. SME corporate arrears are running at roughly 2.3 times the household rate ^[5]. The same briefing also carries 0.82% for small and medium-sized enterprises, 0.10 point below the corporations figure, without reconciling the two labels ^[2][7]. Whichever definition you take, the deterioration is concentrated in the borrowers with the least funding optionality.

This is the balance sheet the housing plan has to travel through. Prime Minister Han Seong-sook told 21 of Seoul's 25 district heads on the 21st that the government would use every available means to clear the shortage left by construction starts declining since 2022 ^[11], with public redevelopment, private rebuilding, urban complex public housing and mixed-use redevelopment of aging government buildings running in parallel ^[13]. What the district heads asked for is the more informative part of that meeting: faster redevelopment approvals, and regulatory changes to improve project viability ^[12]. Viability is a financing word, not a permitting one. Analysts cited in Seoul Economic Daily's briefing make the connection directly, warning that a worsening lending environment presses on real estate project financing and on funding for small and medium-sized construction firms ^[7].

Then there is the 27th. Producer prices fell 0.4% in July from June, the first monthly decline in 11 months, with the annual pace easing to 7.7% from 8.5% and July consumer prices up 2.8% ^[8][9]. Bank of Korea Deputy Governor Kwon Min-soo, inaugurated the same day, said rate hikes carry both policy effects and side effects and that the moment calls for careful, flexible decisions ^[10]. The side effect now has a number attached to it, and the FSS has already said arrears could rebound further if global rates keep climbing ^[3][6]. A consecutive hike would tighten the cohort closest to its 2016 record in the same month the government is asking that cohort to build.

For creditors, the practical read is that this cycle's losses are forming in business lending, and specifically in the small-corporate and construction-adjacent parts of it, while the mortgage book improves.