SEOUL, Aug. 8 (Yonhap) -- The portion of bad loans at South Korean banks hit a two-year high in the second quarter on hike in soured loans extended to companies, the financial regulator said Thursday.
The bad loan ratio at 18 local banks, the portion of so-called non-performing loan (NPL) against their outstanding loans, came in at 1.73 percent at the end of June, up 0.27 percentage point from three months earlier, according to the Financial Supervisory Service (FSS).
A bad loan usually refers to a loan with a default potential due to the borrower's failure to pay interest or make principal repayments for 90 days.
The figure marks the highest since the second quarter of 2011 when the NPL ratio reached the exact same level as this quarter, the FSS said. It had declined to as low as 1.33 percent as of December last year.
The combined loans that turned sour soared by 4.5 trillion won during the April-June period to reach 24.9 trillion won (US$22.34 billion) as of end-June, according to the regulator.
South Korean banks have been forced to increase their loss reserves after a number of major companies here filed for debt rescheduling through their creditors due to a severe cash crunch.
Their second-quarter earnings nearly halved to 1.1 trillion won from 2.1 trillion won as of end-June, on sharp decline in interest income amid the central bank's easing cycle.
The sluggish economy has hit local shipping and shipbuilding sectors hard. Local banks' bad loan ratio for the shipping sector stood at 6.86 percent in the second quarter, spiking from 1.83 percent three months earlier, with the comparable figure for the shipbuilding segment soaring to 6.59 percent from 1.65 percent over the cited period.
In contrast, the NPL ratio for household lending held almost steady at 0.74 percent as of end-June, down 0.04 percentage point from 0.78 percent, largely due to more debt write-offs, the regulator said.
The amount of banks' bad household loans totaled 3.5 trillion won in the second quarter, slightly down from 3.6 trillion won three months earlier, according to the FSS.