"From Household to Corporate Loans"... Increased by 25 Trillion Won This Year Alone

Cold Wind in the Corporate Bond Market... Notable Increase in Large Corporations' Loans
"Attracting Quality SMEs" Banks Compete on Interest Rates

[Asia Economy Reporter Sim Nayoung] Corporate loans, including those to large corporations, small and medium-sized enterprises (SMEs), and individual business owners, have surged by 25 trillion won this year. Banks, concerned about the decline in household loans, are finding relief in the rising trend of corporate loans. Large corporations have turned to banks due to the burden of issuing corporate bonds amid rising interest rates, while SMEs have increased loans to boost investment funds after COVID-19.

As of the end of April, the outstanding corporate loans (large corporations and SMEs) at the five major banks (KB, Shinhan, Hana, Woori, NH Nonghyup) amounted to 660.5858 trillion won. Compared to December last year, this is an increase of 24.6681 trillion won. Corporate loans were a key focus in the New Year's messages of the heads of the five major commercial banks this year, emphasizing the expansion of corporate credit. While household loans face many restrictions due to government policies such as total volume regulation, loan-to-value ratio (LTV), and debt service ratio (DSR) regulations, corporate credit remains largely unregulated, giving banks ample room to expand.

The increase in loans to large corporations was particularly notable. During the same period, loans rose by 5.222 trillion won (from 82.4092 trillion won to 87.6312 trillion won). A representative from Bank A said, "The rise in interest rates has led large corporations, burdened by corporate bond issuance, to turn to bank loans." According to the Financial Supervisory Service, the issuance of general corporate bonds in March was 1.837 trillion won, down 65.8% from the previous month. Large corporations have chosen bank loans over corporate bond issuance, their primary funding method, due to the sharp rise in bond yields following the base interest rate hikes.

As of April, outstanding SME loans at the five major banks totaled 572.9246 trillion won, increasing by 119.4401 trillion won this year alone. Competition among banks is fierce for loans to high-quality SMEs expanding factories or making investments. Establishing a relationship through facility loans initially can lead to operational loans later. A representative from Bank B said, "Banks are competing to increase market share by lowering corporate loan interest rates." According to the Bank of Korea, the corporate loan interest rate at deposit banks (based on new loans in March) was 3.39%, which is 0.59 percentage points lower than the household loan rate (3.98%).

Among SME loans, loans to individual business owners increased by 8.3232 trillion won, accounting for about one-third of the total corporate loan increase. Most of these are loans to small business owners, which banks explain are mostly policy funds related to the COVID-19 crisis rather than investments. "Loans to self-employed individuals carry a higher risk of becoming non-performing loans compared to other sectors, which is a burden for banks," they added.