Invest1 publisher3 min readPublished
Small-firm delinquencies at Korea's four biggest banks now top every household loan ratio
Small-business delinquency at KB Kookmin, Shinhan, Hana and Woori reached 0.53% to 0.92% by the end of August, above every household ratio at the four banks. Recent rate rises have not fully reached delinquency ratios, a financial industry official says, so households paying up to 6.89% on mortgages are the risk still to show up.
The Investor · Invest desk
What happened
- Won-loan delinquency at KB Kookmin, Shinhan, Hana and Woori ranged from 0.37% to 0.64% at the end of August, up from 0.28% to 0.35% at the end of last year, the Seoul Economic Daily reported.
- Delinquency on small and medium-sized business loans rose to between 0.53% and 0.92% from 0.39% to 0.52%, with one bank approaching 1%.
- One bank's large-company delinquency ratio jumped to 0.90% from 0.02% after Joongang Group affiliates entered workout and court-led rehabilitation.
- Household loan delinquency rose far less, to between 0.29% and 0.35% from 0.27% to 0.28%.
- As of September 23, the four banks' highest floating mortgage rates ran from 5.82% to 6.02% and their highest mixed rates from 6.30% to 6.89%.
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Why it matters
- decision With even the cleanest small-firm book worse than the worst household book, the four lenders have a reason to price small-business credit harder just as their own staff describe those borrowers weakening.
- constraint Interest is only one of three rising costs the bank official named, alongside weak domestic demand, so lower rates alone would not restore small firms' ability to repay.
- exposure Households carry the lagged risk: if rate rises have not yet fed through, the 0.35% household ceiling is the ratio most likely to move next.
- exposure One lender's corporate figures hinge on a single group, so its business-loan ratio cannot be read as a guide to the other three banks' corporate credit.
The cleanest small-business book among the four banks, at 0.53%, now sits 0.18 of a percentage point above the worst household book, at 0.35% [3][7][1]. At the end of last year the same comparison, 0.39% against 0.28%, gave a gap of 0.11 points [2]. Over those eight months [6] the top of the household range rose 0.07 points and the bottom 0.02 [3], while the small-firm range rose 0.40 at the top and 0.14 at the bottom [4]. These figures are the edges of four-bank ranges. The best and worst lender in each category need not be the same bank.
Small firms are where the deterioration is broadest (or rather, the most evenly spread), with all four banks above 0.5% [3]. The biggest single move came in large-company lending at the Joongang lender, where the ratio is now 45 times its year-end level after a rise of 0.88 points [5][5]. At the other banks, large-company ratios rose to between 0.09% and 0.19% from 0.02% to 0.04% [6]. The report does not name the Joongang lender or give won amounts behind any ratio. So the 0.88% top of the business-loan range, and the 0.47-point top of the per-bank increases [2], cannot be split between one group and everyone else.
Interest is one of three rising costs a commercial-bank official named, alongside a slump in domestic demand, according to the Seoul Economic Daily. "Amid a prolonged slump in domestic demand, labor costs, raw material prices and interest expenses are all rising, and the repayment capacity of small businesses and sole proprietors is deteriorating rapidly," the official said [4]. A financial industry official placed most of the rate effect in the future. "The recent increase in interest rates has not yet been fully reflected in delinquency ratios," the official said. "There is a chance they will rise further." [9] Households are the borrowers exposed to that lag, with the four banks' top mixed mortgage rates running as high as 6.89% [8].
If Joongang stays a one-bank event and small-firm arrears follow domestic demand, companies keep leading households and rates remain a secondary cause. Mortgage resets would change the order. The first sign would be a household ceiling rising faster than the 0.07 points it moved in eight months [3]. A second business group entering workout would put a jump of Joongang's size into another bank's large-company book [5].
I think the evidence supports the order, with companies first and small firms most widely affected. It does not yet support rates as the main cause. The bank official names interest alongside demand, labor and materials [4], and the industry official says the rate rise has not fully arrived [9]. For the four lenders, I'd expect the ratios to argue for pricing small-firm credit harder at the point when, on that bank official's account, those borrowers can least absorb it. The thesis fails if the household ceiling rises faster than the small-firm floor in the next set of figures.
What to watch
- The next four-bank delinquency figures, and whether the household ceiling of 0.35% rises faster than the small-business floor of 0.53%.
- Whether another Korean business group enters workout or court-led rehabilitation, putting a Joongang-sized jump into a second bank's large-company book.
- Whether top mortgage rates move off the 5.82% to 6.89% range recorded on September 23, and whether household arrears follow.