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Korean banks' nonperforming loans declined 5.5 percent in the third quarter from three months earlier as bad loans extended to businesses shrank, data showed Wednesday.

Bad loans held by local banks reached 9.7 trillion won ($7.3 billion) at the end of September, compared with 10.3 trillion won three months earlier, according to the preliminary data from the Financial Supervisory Service (FSS).

The ratio of bad loans to total lending came to 0.38 percent as of end-September, down from 0.41 percent in the previous quarter. The ratio also dropped from the previous year's 0.51 percent.

Bad loans extended to businesses amounted to 8 trillion won, down from 8.6 trillion won, the data showed. Overdue corporate loans accounted for 82.8 percent of total nonperforming loans.

Nonperforming loans extended to households remained unchanged over the same period at 1.5 trillion won, the data showed.

The FSS said local banks' nonperforming loans have been on the decline, indicating that their asset soundness is in good shape.

The regulator vows to keep up efforts to induce them to strengthen shock-absorbing capability while continuing to play a role of channeling necessary funds to businesses and households. (Yonhap)