The ratio of bad loans at South Korean banks fell to a record low last year, a financial regulator said on Wednesday, adding to signs that the sector is bouncing back from the impact of a soured credit card boom. Aggressive write-offs and a fall in new bad debt helped reduce problem loans at lenders, which have seen profits hit in the past few years by big charges against bad loans.
But slow growth in lending, stiff competition from big global players and easier interest rates were expected to continue to provide challenges for local banks in 2005, analysts said.
Combined non-performing loans at the country's 19 banks, where interest has not been paid for more than three months, fell to a net 13.9 trillion won ($13.55 billion) at end-2004 from 18.7 trillion at end-2003, the Financial Supervisory Service said in a statement.
"New bad loans decreased to 26.2 trillion won last year from 35.3 trillion a year ago, while banks shaved off 31.1 trillion won of bad loans through write-offs and sales," the statement said.
The ratio of bad loans against total credit slipped to 1.90 percent from 2.63 percent a year earlier, staying within the regulator's target of below 3 percent.
"Overall, the banking sector has taken heed of risk management and upgraded systems," said Sung Byung-soo, an analyst at Kyobo Securities. "I expect the pace of bad loan growth to stabilise down the road."
After being hit hard by a soured credit card boom in late 2002, South Korean lenders have been reining in new loans, while struggling to expand into non-banking operations to increase revenue sources.
Kookmin Bank, the country's top retail lender, had a 2.64 percent bad loan ratio, the highest level among the country's leading banks. In contrast, Shinhan Bank, a unit of second-ranked Shinhan Financial Group had 1.39 percent.
Bad loans from the corporate sector dropped 30 percent to 8.3 trillion won, while troubled loans from credit card operations plummetted 48 percent to 1.3 trillion.
Separately, Shinhan Financial is to unveil hefty gains in quarterly results later on the day, with its bigger rival Kookmin is expected to chalk up a narrower fourth-quarter loss on Thursday, according to analysts' estimates.
Shares in Kookmin fell 1.12 percent to 44,000 won at 0126 GMT, underperforming a 0.18 percent dip in the wider market.