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S. Korean banks' bad debt ratio falls to 9-year low on low interest rate

SEOUL
2017-08-23 15:49

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Bad debt ratio among South Korean banks fell to the lowest in almost nine years due to the record-low interest rate, financial watchdog data showed Wednesday.

Bank loans, overdue a month or longer, came in at 1.25 percent of the total as of end-June, down 0.13 percentage points from three months earlier, according to the Financial Supervisory Service (FSS).

It was the lowest since the global financial crisis began to spread in late 2008. At the time, the overdue ratio was 1.14 percent.

The lower delinquency ratio was attributable to the record-low borrowing costs. The central bank cut its benchmark interest rate from 3.25 percent in July 2012 to an all-time low of 1.25 percent in June last year.

The Bank of Korea (BOK) indicated a rate hike in the foreseeable future as the U.S. Federal Reserve raised its policy rate to a range of 1.00-1.25 percent.

The narrower gap between policy rates of South Korea and the United States could trigger foreign capital outflow from the South Korean financial market.

If the BOK hikes its benchmark rate, the bad debt ratio of banks could go higher and put pressure on the financial stability of the South Korean economy.

The delinquency ratio for corporate loans stood at 1.81 percent as of end-June, down 0.18 percentage points from three months ago.
The ratio for household debts fell 0.02 percentage points to 0.26 percent in the cited period.
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