SEOUL, Aug. 8 (Xinhua) -- Bad loan ratio in South Korea hit the highest level in two years as loans to shipbuilding and shipping industries turned sour amid the persistent sluggishness of those sectors, financial watchdog data showed Thursday.
The ratio of sub-standard loans to the total volume extended by banks was 1.73 percent as of the end of June, up 0.27 percentage points from three months earlier, according to the Financial Supervisory Service (FSS). The figure was the highest since June 2011 when the ratio touched the exactly same level.
The sub-standard loans refer to those with a high risk of default as borrowers failed to repay debts for more than three months.
Bad loans increased 4.4 trillion won (3.95 billion U.S. dollars) during the April-June period as sour corporate loans almost doubled in the second quarter from three months earlier, due to the materialization of potential defaults in the shipbuilding and shipping sectors.
The bad loan ratio for shipbuilders increased to 6.86 percent as of end-June from 1.83 percent three months ago, with the figure for shipping companies jumping from 1.65 percent to 6.59 percent over the same period.
Loan losses among banks increased due to higher bad debts. The lenders wrote off 2.1 trillion won in bad loans during the second quarter, while selling off sour loans.
The watchdog said downside risk factors remained, such as an early exit of U.S. quantitative easing and an economic slowdown in China, noting that it will encourage banks to enhance capability for absorbing loan losses.