South Korean banks' delinquency rate on won-denominated loans turned higher after a month. New delinquencies increased, while the scale of delinquent-loan cleanups that had been concentrated the previous month declined.

The delinquency rate on won-denominated loans at South Korean banks stood at 0.63 percent at end-July, up 0.07 percentage point from end-June's 0.56 percent, the Financial Supervisory Service said on Monday. It was 0.06 point higher than the same month a year earlier, when it was 0.57 percent.

The delinquency rate on won-denominated loans at South Korean banks fell to 0.56 percent in June from 0.67 percent in May, then rose again in July.

New delinquencies in July came to 3.2 trillion won, up 600 billion won from 2.6 trillion won the previous month. The amount of delinquent loans cleared fell by 3.9 trillion won to 1.4 trillion won from 5.3 trillion won.

The new delinquency rate, calculated by dividing new delinquencies by outstanding loans at the end of the previous month, rose to 0.12 percent from 0.10 percent, up 0.02 percentage point. It was also 0.01 point higher than 0.11 percent in the same month a year earlier.

By segment, the delinquency rate on corporate loans rose 0.10 percentage point to 0.78 percent from 0.68 percent the previous month. The rate on loans to large companies rose 0.14 point to 0.36 percent from 0.22 percent, and the rate on loans to small and medium-sized enterprises increased 0.09 point to 0.91 percent from 0.82 percent.

Among SME loans, the delinquency rate on loans to SME corporations rose 0.08 percentage point to 1.00 percent from the previous month. The delinquency rate on loans to individual business owners rose by 0.08 point over the same period to 0.77 percent.

The delinquency rate on household loans rose 0.02 percentage point to 0.42 percent from 0.40 percent the previous month. The rate on mortgage loans increased 0.01 point to 0.29 percent, while the delinquency rate on household loans excluding mortgages, including unsecured loans, rose 0.07 point to 0.84 percent.

The FSS analysed the July rise in the delinquency rate as being driven by a reduced amount of delinquent-loan cleanups and new delinquencies linked to corporate rehabilitation and workouts at an affiliate of the JoongAng Group.

It assessed that the rising trend in market interest rates and uncertainty in external economic conditions could mean the delinquency rate may continue to rise or expand.

Accordingly, the FSS plans to continuously check the soundness situation, including delinquency rates, with a focus on vulnerable sectors where a deterioration in asset quality is a concern. It also plans to encourage banks to manage soundness by building sufficient loan-loss reserves and actively writing off and selling non-performing loans.