Mortgage delinquencies more than double at Korean banks as rate hikes squeeze borrowers

Tighter lending regulations and rising interest rates have frozen housing demand, but delinquencies among existing mortgage borrowers are snowballing. While stricter loan requirements have cooled new demand from heavily leveraged buyers, those who already took on debt to purchase homes are being squeezed by mounting interest burdens they can no longer absorb.

Data submitted by the Financial Supervisory Service to People Power Party lawmaker Park Sung-hoon of the National Assembly's Political Affairs Committee on Tuesday showed that the outstanding balance of mortgage loans at domestic banks grew 21 percent, from 644.3 trillion won ($475 billion) at the end of 2022 to 779.2 trillion won as of the end of June this year.

Delinquent loan balances grew far faster over the same period. Loans overdue by one month or more more than doubled, rising from 1 trillion won to 2.2 trillion won — a pace six times higher than the overall loan balance growth rate.

Loans overdue by three months or more climbed from 500 billion won at end-2022 to 900 billion won at end-2023, then to 1.1 trillion won at end-2024 and 1.4 trillion won at the end of last year. The balance remained at a similar level as of the end of June this year.

Substandard and below loans — the combined total of substandard, doubtful and estimated-loss classifications — also rose from 800 billion won at end-2022 to 1.7 trillion won as of the end of June this year.

As a result, the loan-loss provisions banks are setting aside have ballooned as well. Loan-loss provisions stood at around 300 billion won at end-2022 but tripled to 900 billion won by the end of June this year.

Among individual banks, NH NongHyup Bank carried the largest mortgage delinquency balance as of the end of June, at 511.73 billion won. KB Kookmin Bank (368.02 billion won), Woori Bank (341.96 billion won), Hana Bank (302.66 billion won) and Shinhan Bank (216.88 billion won) followed. NH NongHyup Bank's balance reportedly exceeded 500 billion won for the first time this year.

Some banks saw their delinquency rates surge. Jeonbuk Bank's mortgage delinquency rate jumped from 0.19 percent at end-2025 to 0.95 percent at the end of June this year — the highest among domestic banks — while its overdue balance swelled from 5.26 billion won to 32.81 billion won. The four major commercial banks — KB, Shinhan, Hana and Woori — all kept their delinquency rates below 0.3 percent, with Shinhan Bank posting the lowest at 0.19 percent.

Mortgage loans are generally regarded as among the safest assets in the financial sector, since real estate collateral means banks can ultimately recover principal through foreclosure auctions even when borrowers default. Warning signs now flashing even for this traditionally safe asset class have put financial regulators on high alert.

With the Bank of Korea having raised its benchmark interest rate in two consecutive moves and long-term market rates surging as a result, mortgage and other loan delinquency rates are expected to climb further. Financial authorities have been repeatedly urging banks to strengthen their capacity to absorb losses.

The balance of non-performing loans — those on which banks can no longer expect interest income — also reached its highest level since the COVID-19 pandemic. The combined non-performing loan balance at the five major banks (KB, Shinhan, Hana, Woori and NH NongHyup) stood at 6.41 trillion won at the end of the second quarter, up 28 percent from end-2025. The ratio of non-performing loans to total loans at these banks reached 0.34 percent at the end of the second quarter, matching the level recorded at the end of the second quarter of 2020 during the COVID-19 pandemic — the highest since then.

The five banks' combined non-performing loan balance has grown consistently each year, rising from 2.79 trillion won at end-2022 to 3.51 trillion won at end-2023 and 4.37 trillion won at end-2024.

Non-performing loans are defined as loans on which banks do not book interest as income or on which principal and interest repayments are more than three months overdue — assets from which banks can no longer realistically expect interest revenue.