SEOUL, May 8 (Yonhap) -- Major South Korean banks saw their bad debt rise by around 1.5 trillion won (US$1.38 billion) this year due to some larger companies' financial troubles and households' failure to repay debt, data showed Wednesday.
Top lender Kookmin Bank and its five other rivals had a combined bad debt worth 13.1 trillion won as of end-March, up 13 percent from the end of last year, according to industry data.
If added to the portion of bad loans from other smaller banks, the amount of such soured debt is estimated to have risen by around 2 trillion won this year, market watchers say.
Bad debt, dubbed sub-standard loans, refers to loans overdue for more than three months.
The value of loans estimated as losses, which are loans overdue for more than one year, rose 25.1 percent on-quarter to 2.7 trillion won in the first quarter, data showed.
A pile-up of bad debt mainly came as the protracted economic recovery raised the number of companies and households suffering from financial troubles, experts said.
As for the corporate sector, South Korea's shipbuilders, construction firms and shippers saw their financial health and profitability sharply worsen last year, raising default risks in those industries, according to a recent report by the central bank.
Shipbuilding conglomerate STX Group's liquidity crunch also adds to worries for local banks, whose exposure to the group reached 13.19 trillion won as of end-March, according to separate data.
South Korean households' worsening capacity to service debt contributed to increasing the portion of bad debt. Banks' delinquency ratio for home lending has been on the rise amid the slumping property market and the economic slowdown.
An increase in bad debt means that banks should allocate higher reserves to cover possible loan losses, crimping their earnings.
The financial watchdog earlier said that local banks' profitability is likely to be dented this year as the economic slowdown is raising the amount of bad debt.
Choi Soo-hyun, the governor of the Financial Supervisory Service, said on Wednesday that the watchdog will advise local banks to beef up risk management and to refrain from excessively paying out dividends.
The Financial Services Commission, the state financial regulator, has been evaluating credit risks of large companies and conglomerates with the aim of releasing a list of candidates subject to corporate restructuring in July.
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