South Korean banks’ non-performing loans (NPL) ratio dropped below 1 percent in the third quarter for the first time in 10 years due to deleveraging by big companies in the wake of the 2008-09 global financial crisis.
According to data released by the Financial Supervisory Service on Sunday, the ratio of Korean banks’ non-performing loans stood at 0.96 percent as of the end of the July-September period, down 0.1 percentage point from three months ago and 0.19 percentage point from a year earlier. The last time the ratio fell below 1 percent was the end of the third quarter 2008 right before the global financial crisis rattled financial and asset markets across the world.
The NPL ratio refers to the amount of non-performing loans over total loans and is one of key indicators for a bank’s asset quality.
The NPL ratio for business declined 0.16 percentage point to 1.4 percent during the period, while the ratio for household debts edged down 0.01 percentage point to 0.23 percent and that for home mortgage loans inched down 0.01 percentage point to 0.18 percent.
The significant drop in the overall NPL ratio was mainly led by banks’ continued efforts to clear bad debts and streamlining efforts by companies.
In terms of value, non-performing loans held by Korean banks fell to 17.8 trillion won ($16 billion), down 1.6 trillion won from a quarter ago. Loans extended to business made up the lion’s share of 89.9 percent, or 16 trillion won, of the total.
The financial regulator plans to keep up watch over lenders in their reserve against potential bad debts, an official said.
By Kim Dong-eun and Lee Ha-yeon
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