Due to growing uncertainties over a recovery of the domestic economy, the loans extended to small- and medium-sized enterprises (SME) could come back to haunt the local banking sector.
Loans to SMEs totaling 160 trillion won are expected to mature this year and banks may be weighed down by the potential rising delinquency rates of these loans. The default rate of SME loans stood at 2.1 per cent at the end of last year, but has steadily risen to 2.8 per cent in January and above 3 per cent in April.
If the ratio rises by 1 per cent, the book value of banks will decline by an average of 3.6 per cent. Considering the risks associated with SME loans, we have downgraded the 2004 profit forecast by 17.4 per cent,” said Jason Yu, head of the financial team at Samsung.
