Companies and Households Surviving on Debt After COVID-19, 75 Trillion Won in Loans

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Since the outbreak of the novel coronavirus infection (COVID-19), businesses (including self-employed individuals) and households have newly borrowed more than 75 trillion won from banks. In the economic contraction situation caused by the spread of COVID-19, economic agents have temporarily sustained themselves through bank loans. With signs of a resurgence of COVID-19 mainly in the metropolitan area and the Bank of Korea's additional base rate cuts reducing loan burdens, it is expected that this increasing trend may continue for the time being.

According to the Bank of Korea and the Financial Services Commission on the 31st, from February to April, the three months when the COVID-19 situation began to intensify, the amount borrowed by businesses and households from banks increased by 75.4 trillion won.

Corporate loans, which stood at 877.5 trillion won at the end of January, rose to 929.2 trillion won by the end of April, and during the same period, household loans increased from 892 trillion won to 915.7 trillion won. Considering that the increase in bank loans for businesses and households during the same period last year (February to April) was only 21.9 trillion won, this year's loan increase is 3.4 times higher than a year ago.

Corporate loans increased particularly significantly. As of the end of April, corporate loans rose by 51.7 trillion won compared to the end of January. Compared to last year's increase of 12 trillion won during the same period, this is more than four times higher. Loans to small and medium-sized enterprises increased by 29.9 trillion won during this period, of which 16.8 trillion won were loans to self-employed individuals. This indicates that self-employed people, whose sales were immediately cut off due to social distancing, have sustained themselves through loans.

Loans to large corporations also increased by 21.7 trillion won from February to April. Considering that bank loans to large corporations decreased by 1 trillion won during the same period last year, this is a significant change.

Households newly borrowed about 23.7 trillion won from banks after the COVID-19 outbreak. Compared to last year's increase of 9.9 trillion won during the same period, this is more than double. However, the increase in household loans is mixed with factors such as the sharp rise in the real estate market at the end of last year, the December 16 loan regulations, and urgent loan demand due to COVID-19. In the first half of the February to April period, there was high demand for loans related to the real estate market, but as time progressed toward the latter half, the demand for funds due to COVID-19 increased.