South Korean banks are facing a significant challenge as delinquency rates on loans continue to rise. The delinquency rate on won-denominated loans reached 0.53% by the end of August, marking the second consecutive monthly increase, according to the Financial Supervisory Service last week.

This trend, especially pronounced in corporate loans, presents risks to the banking sector. Although the recent rate cut by the Bank of Korea (BOK) offered some relief by lowering bowering costs, it also introduces risks by encouraging borrowing amid already high debt levels.