The volume of non-performing loans have fallen to pre-global financial crisis levels following the completion of the government’s large-scale restructuring of Korea’s ailing shipbuilding and shipping industries, according to the Financial Supervisory Service on Tuesday.

The FSS announced that non-performing loans held by local banks reached 23.7 trillion won ($21.1 billion), or 1.38 percent, at the end of the first quarter, a 0.04 percentage point improvement compared to the end of last year. 

The percentage marks the lowest level since 1.33 percent at the end of 2012 and stands at a similar level with other major countries such as the US at 1.39 percent and Japan at 1.4 percent.

The data also revealed bad loans extended to businesses totaled 21.7 trillion won at the end of March, accounting for 91.6 percent of total non-performing loans. During the first quarter, domestic banks trimmed their non-performing loans by 5.2 trillion won compared with the previous quarter.

The volume of non-performing loans among large corporations also fell by 0.22 percentage point to 2.93 percent, while small and medium-sized enterprises dropped 0.08 percentage point to 1.38 percent.

Despite an overall decline in the bad loans ratio, non-performing loans for Korea’s debt-ridden shipbuilding and shipping industries still remained high as of the end of March at 11.56 percent and 4.68 percent, respectively.

The ratio of poor loans was high among the Export-Import Bank of Korea and the Korea Development Bank, at 4.36 and 3.44 percent, respectively, accounting for a large volume of non-performing loans in the shipbuilding and shipping industries.

The State Affairs Planning Advisory Committee, President Moon Jae-in’s de facto transition team, announced during its committee meetings that the new government is expected to revise Korea’s current corporate restructuring system in an effort to help liquidate debt-ridden companies.

With the intention of moving away from restructuring limitations that are centered on banks, creditors and private equity funds playing supervisory roles to aid companies with their debt, the FSS has introduced a market-based restructuring plan, in which private equity funds can purchase weak corporate bonds in an effort to normalize a business, rather than having banks in control of restructuring.

By Julie Jackson (juliejackson@heraldcorp.com)