Banks Tighten Household Loans... Shift Focus to Corporate Loans

Outstanding Corporate Loans at 5 Major Banks Reach 644 Trillion KRW in January... 8 Trillion KRW Increase in One Month
Major Commercial Banks Strengthen Corporate Credit Policy to "Defend Profitability"

[Asia Economy Reporters Jehoon Yoo, Aeri Boo] Banks have been strengthening their corporate lending sector since the beginning of the year. As the government tightens household loans through a total volume control system, weakening growth momentum in the retail finance sector, banks plan to compensate by expanding corporate loans.

According to the financial sector on the 7th, the outstanding corporate loans (large corporations, small and medium enterprises, and individual business owner loans) of the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup Bank) amounted to 644.0618 trillion KRW last month. This represents an increase of 8.174 trillion KRW (1.28%) compared to the previous month.

By borrower type, loans to large corporations increased by 2.32% (1.9139 trillion KRW) to 84.3232 trillion KRW, while loans to small and medium enterprises rose by 1.80% (4.5748 trillion KRW) to 258.3318 trillion KRW. SOHO (individual business owner) loans increased by 0.56% (1.6854 trillion KRW) to 301.4069 trillion KRW. An industry insider explained, "The high increase in large corporate loans reflects seasonal factors typical of January when bonuses are paid," adding, "The growth in SME and SOHO loans seems to reflect recent economic conditions."

Banks are refocusing on corporate loans because expanding household loans has become difficult due to the government's total volume control on household loans. Under the strengthened Debt Service Ratio (DSR) regulation on household debt effective from last month, borrowers with loans exceeding 200 million KRW are subject to a DSR limit of 40%.

The surge in funding demand from SMEs and self-employed individuals due to the spread of the COVID-19 Omicron variant is also cited as a cause. Loans to SMEs, including individual business owners, increased by 6.2602 trillion KRW over the past month, more than four times the previous month's increase (1.8691 trillion KRW), marking the largest growth in six months since July last year.

The emphasis on strengthening corporate lending is also evident in the New Year's messages from bank CEOs. KB Financial Group Chairman Yoon Jong-kyu stated in his New Year's address, "With growth expected to be limited in household loans, let us focus more on corporate finance and the capital market sectors to seek new growth opportunities." Woori Bank President Kwon Kwang-seok also emphasized, "We must steadily implement plans such as expanding total corporate marketing into the SME sector and optimizing the loan portfolio considering the end of repayment deferrals for companies affected by COVID-19."

From the start of the year, banks have undertaken organizational restructuring and product expansion related to corporate loans. KB Financial Group reportedly set a corporate loan growth target at 200% of last year's increase rate during its nationwide headquarters managers' meeting early this year.

Shinhan Bank introduced the SRM (Senior Relationship Manager) system early this year to strengthen corporate lending sales. This system expands the RM (Relationship Manager) role, a core function in corporate sales, aiming to maintain continuous sales capabilities even when highly capable employees are promoted to department head level, rather than simply taking on managerial roles. Additionally, Shinhan Bank will expand the ‘Corporate Sales Team Leader’ system, piloted last year, nationwide. Corporate team leaders stationed at regional headquarters will lead corporate sales within the headquarters and enhance the capabilities of junior staff.

NH Nonghyup Bank plans to expand its metropolitan area corporate finance centers by about 30% to 65 locations, focusing on facility fund demand in the metropolitan area. In this regard, NH Nonghyup Bank launched the ‘NH Corporate Growth Loan’ product at the end of last month and will also provide specialized services such as NH Corporate Management Consulting and Agricultural Food Industry Consulting by sector.

An official from a commercial bank said, "The strengthening of the household loan total volume control has weakened growth momentum in the household lending sector," adding, "For each bank, it is a natural trend to expand sales into corporate lending or asset management sectors rather than limited household lending."