[Alpha Biz= Paul Lee] As the construction downturn drags on, liquidity conditions for small and medium-sized construction firms in Korea have deteriorated sharply. Delinquency rates at Industrial Bank of Korea (IBK) for SME construction loans have climbed to the highest level since data tracking began, while the volume of effectively unrecoverable bad loans has reached a record high.

According to financial sector sources on February 23, IBK’s delinquency rate for SME construction loans—defined as principal and interest overdue by more than one month—stood at 1.71% at the end of last year. This represents a 0.49 percentage point increase from a year earlier and marks the highest year-end level since 2011, based on the bank’s investor relations data.

The delinquency rate had remained in the 0% range through the end of 2022, before rising to 1.14% at the end of 2023 and 1.22% at the end of 2024, eventually jumping to 1.71% at the end of last year. While the rate hovered between 1.32% and 1.34% through the first three quarters of last year, it surged in the fourth quarter. On a quarterly basis, it reached 1.76% at the end of the first quarter of 2024—the highest level since the third quarter of 2012, nearly 12 years earlier.

Delinquency rates among SMEs in the real estate and leasing sectors have also deteriorated rapidly. As of the end of last year, the rate stood at 0.87%, more than double the 0.34% recorded a year earlier, marking the highest year-end level since 2013. The rate peaked at 1.16% at the end of the third quarter last year, the highest since the first quarter of 2013, and has remained elevated.

The construction slump is weighing on Korea’s broader economy. According to the Bank of Korea, construction investment—including buildings and civil engineering—fell 3.9% in the fourth quarter alone. On an annual basis, construction investment declined by nearly 10%, shaving 1.4 percentage points off overall economic growth. Excluding construction investment, annual growth would have risen from 1.0% to 2.4%, the central bank estimated.

Prospects for a recovery remain limited. In its November economic outlook, the Bank of Korea projected construction investment growth of 2.6% this year and 1.9% next year. However, the central bank cautioned that these figures largely reflect base effects, suggesting a gradual recovery at best, with downside risks stemming from external factors such as raw material prices.

Alongside rising delinquencies, bad loans are also increasing rapidly. IBK’s loans classified as “estimated loss”—a category for credits deemed virtually unrecoverable—amounted to KRW 638.9 billion at the end of last year, up 19.7% from KRW 533.8 billion a year earlier, marking an all-time high.

The figure has been climbing steadily, rising from KRW 290.8 billion at the end of 2021 to KRW 335.2 billion in 2022, KRW 424.3 billion in 2023, and KRW 533.8 billion in 2024—an increase of roughly KRW 100 billion each year.

 

 

[ⓒ 알파경제. 무단전재-재배포 금지]