Banks set target for year-end bad loan ratio at 1.49%

South Korea banks are targeting to keep the portion of bad loans against their total lending at 1.49 percent at the end of this year, the financial regulator said Sunday. The target bad loan ratio is up from 1.33 percent a year earlier and 1.36 percent at the end of 2011, according to the Financial Supervisory Service (FSS). A bad loan refers to a loan with a default potential due to the borrower's failure to pay interest or make principal repayments for 90 days. The higher target ratio is due to a change in guidelines for bad loan classification, which the financial regulator introduced in the second quarter of the year. Excluding the impact of the new guidelines, local banks' bad loan ratio is expected to reach 1.22 percent at the end of this year, the FSS said. The combined bad loans at 18 local banks are expected to come to 21.6 trillion won (US$19.9 billion) at year-end, down from 24.9 trillion won at the end of June. The bad loan ratio at the banks hit a two-year high of 1.73 percent at the end of June, up 0.27 percentage point from three months earlier, due to a hike in soured corporate loans, according to the FSS.