Banks' bad loan rate still high: report

SEOUL, Aug. 21 (Yonhap) -- South Korean banks should beef up their risk management as the level of their loan delinquency remains high and could pose potential risks amid economic uncertainties, a report said Sunday.
Local lenders' rate of non-performing loans on small and medium enterprises (SMEs) and property market-related project financing have been trending lower but are still at a high level, according to the report by the Korea Institute of Finance.
Non-performing loans at 18 local banks stood at 1.73 percent of their total lending as of the end of June, down from 2 percent in the previous quarter. Their non-performing loan rate on household debts reached 0.56 percent at the end of the second quarter, according to data by the Financial Supervisory Service (FSS).
The report, however, said the bad loan rates on SME and project financing debts are still high and could lead to a rise in fresh bad loans amid a prolonged slump in the local property market and a slowing global economy.
The report also said banks should continue to step up efforts to enhance their asset quality and capacity to cushion losses.
"The environment for local banks is not all positive as regulations on banks are being tightened and uncertainties on the global economy are rising," the report said. "Local banks should focus on a stable management strategy by enhancing risk management."
Earlier this month, the FSS said the second-quarter results are favorable but warned of a possible pile-up of fresh bad debts down the road.
As part of efforts to curb insolvency, the FSS said it plans to encourage local banks to set annual targets for bad debt reduction.
mil@yna.co.kr