A construction company work site. (Image courtesy of Yonhap)
SEOUL, Dec. 3 (Korea Bizwire) — South Korea’s construction downturn is continuing to weigh heavily on the nation’s banks, with major lenders reporting persistently high levels of bad loans tied to the troubled sector.
According to third-quarter disclosures released on Wednesday, the country’s five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — held 28.6 trillion won in outstanding construction loans at the end of September. Of that, 416.6 billion won, or 1.46 percent, was classified as non-performing.
Although the ratio dipped slightly from the previous quarter’s 1.53 percent, it remains dramatically higher than in other industries. Manufacturing recorded a non-performing loan ratio of just 0.37 percent, wholesale and retail 0.50 percent, lodging and food service 0.39 percent, and real estate 0.46 percent. Compared with manufacturing, the share of bad loans in construction is roughly four times higher.
Non-performing loans are defined as those with principal or interest payments overdue by more than three months.
Construction-Driven Growth Could Inflate Debt, Bank of Korea Warns (Yonhap)
Banks have been grappling with a surge in problematic construction loans as real estate project financing has faltered and the broader construction environment has slumped. The sector’s bad-loan ratio jumped from 1.17 percent in the first half of 2023 to 1.60 percent a year later, and has remained stuck in the mid-1 percent range through this year.
“A rise in unsold new housing, especially among regional builders, has strained cash flows and significantly weakened repayment capacity,” a senior commercial-bank official said.
The Bank of Korea expects the prolonged weakness in construction investment to ease gradually, but warns that the recovery will be slow due to persistent oversupply and mounting inventories of unsold homes outside major cities.
In its final economic outlook of the year, released Nov. 27, the central bank lowered its construction investment growth forecast for 2024 from –8.3 percent to –8.7 percent. It expects a rebound beginning in 2025, with projected growth of 2.6 percent in 2026 and 1.9 percent in 2027, though it cautions that tighter real estate regulations and lingering market imbalances will keep the pace subdued.
M. H. Lee (mhlee@koreabizwire.com)
