South Korea’s non-performing loan (NPL) market contracted by 14% last year after the government introduced measures to support firms hit by the Covid-19 pandemic.
Sales of NPLs by 11 South Korean banks totaled 3.75 trillion won ($3.39 billion), down by about 600 billion won from 2029, according to data compiled by advisory firms.
Industrial Bank of Korea, the country’s most active seller of bad loans, sold NPL portfolios worth 1.4 trillion won last year, an increase of 2% from its 2019 total of 1.37 trillion won. However, most of the other banks saw declines in NPL deals.
Markets have been slowing since 2019, when transactions fell by about 400 billion won year-on-year due to stagnant growth overall in loans. However, the contraction in 2020 was largely attributed to the government’s debtor-friendly Covid-19 measures.
The government introduced a range of measures, including extending debt maturities and lowering the interest rate, in efforts to prevent a sharp increase in bad loans, as it responded to increasing concerns about the slowing economy due to the pandemic.
NPL buyers also took a wait-and-see approach on valuations and fundraising slowed. UAMCO, the country’s largest bad loan manager, bought NPL portfolios worth 1.3 trillion won in 2020, down from more than 2 trillion won a year earlier. Eugene Asset Management, JB Woori Capital and Mirae Asset Global Investments, which were all active players in the market in 2019, did not invest in NPLs at all last year.
However, other players increased their investments in expectation of a market recovery. Hana F&I doubled its investment in NPLs to 1.3 trillion won, and Daishin F&I increased its purchases to 560 billion won, up from 320 billion won in 2019.
Meanwhile, Kiwoom Securities launched its NPL business Kiwoom F&I and bought 142.5 billion won of bad loans in the fourth quarter. (Reporting by Hee-yeon Han)