Insights

With non-performing loans on bank balance sheets swelling to KRW 17.7 trillion, the NPL market is expected to be supply-led in the second half. In this report, Samjong KPMG analyzes the non-performing loan market across four dimensions: supply, demand, major issues, and the outlook for the second half. The macroeconomic backdrop is already showing warning signs. The Financial Stress Index entered the “caution” stage at 17.2 in May 2026, while the Financial Vulnerability Index reached 46.0, above its long-term average of 45.7. The won–dollar exchange rate moved above KRW 1,500 in June. Although the base rate remained unchanged at 2.5% for an eighth consecutive meeting, market interest rates are rising, while household mortgage lending has returned to growth since March.

Supply — an increase in bank-led sale volumes is on the horizon. Non-performing loans at Korean banks rose from KRW 16.6 trillion in 2025 to KRW 17.7 trillion at the end of March 2026, an increase of KRW 1.1 trillion year on year. Sales totaled KRW 8.1 trillion in 2025 and reached KRW 1.6 trillion by the end of March 2026, up KRW 0.2 trillion year on year. With delinquencies rising across both household and corporate loans amid a persistently weak won and prolonged domestic slowdown, banks and non-bank financial institutions are expected to increase NPL resolution and sale volumes. Banks, in particular, are increasingly likely to bring commercial and residential secured loans involving small and medium-sized businesses and sole proprietors to market through sales rather than internal recovery or debt restructuring.

Demand — specialist firms dominate, and their capital is already in place. Since 2019, specialist NPL companies have accounted for more than 90% of the market. In the second quarter of 2026, they purchased 89.2% of all NPL investment transactions and 90.3% by value. Asset managers have recently increased purchases modestly, but specialist firms are improving capital adequacy and expanding purchasing capacity through bond issuance and rights offerings, so the market is expected to remain centered on well-funded specialists. In the second half, however, investment and exit strategies must account for funding costs and fluctuations in the real estate market. As more secured claims involve factories and commercial properties outside the Seoul metropolitan area, collateral valuation and legal relationships are becoming more complex, increasing the importance of accurate portfolio-level valuation, asset due diligence, and loan-servicing capabilities at asset management companies.

Implications for M&A. First, increased bank-led sales will broaden opportunities for bulk NPL portfolio transactions and special-situations investment, potentially encouraging asset managers and global credit funds, as well as specialist firms, to enter the market. Second, non-bank financial institutions facing greater asset-quality pressure from rising delinquency rates may become potential sellers in restructuring transactions involving capital reinforcement and non-core asset disposals. Third, growing complexity in secured claims will make due diligence and valuation capabilities more decisive to deal outcomes and may catalyze restructuring M&A linked to the rehabilitation of distressed companies.