Household Loans Decrease... Corporate Loans Continue to Rise Steadily

Household Loans Decrease by Over 9 Trillion Won This Year
Corporate Loans Show Six Consecutive Months of Growth

[Asia Economy Reporter Minwoo Lee] As the era of full-scale interest rate hikes begins, the outstanding balance of household loans at major domestic commercial banks is steadily decreasing. On the other hand, corporate loans are showing a continuous upward trend regardless of the borrower.

According to the financial sector on the 2nd, as of the end of last month, the outstanding balance of household loans at the five major domestic commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was recorded at 699.6521 trillion KRW. This is a decrease of 1.4094 trillion KRW compared to the previous month. Compared to the end of last year, it has decreased by 9.4008 trillion KRW. Since the beginning of this year, it has been declining for six consecutive months, falling below 700 trillion KRW.

It is interpreted that individuals are reducing their loans as the era of interest rate hikes fully begins. Previously, the Bank of Korea raised the base interest rate five times from August last year to May this year. During this period, the base rate soared from 0.50% to 1.75%. With another rate hike expected at the Monetary Policy Committee meeting scheduled for the 14th, it is anticipated that the interest rate hike cycle will continue for the time being.

On the other hand, corporate loans are steadily increasing. As of the end of last month, the outstanding balance of large corporate loans at the five major commercial banks was 91.9245 trillion KRW, an increase of 1.9569 trillion KRW compared to the previous month. Loans to small and medium-sized enterprises also increased by 3.7998 trillion KRW from the previous month, reaching 581.8952 trillion KRW.

[Image source=Yonhap News]

Although the newly issued interest rates for household and corporate loans are rising similarly, since their characteristics differ, it is analyzed that a corporate loan-centered portfolio would be advantageous from the banks' perspective. Excluding mid-credit loans handled by internet-only banks, household loans are expected to have lower interest rates and loan amounts than the data shown on the surface.

Kim Doha, a researcher at Hanwha Investment & Securities, said, "While the spread on household loans is estimated to have been declining since the end of last year and early this year, corporate loans are showing both growth and rising loan interest rates simultaneously, so a corporate-centered loan portfolio will increase sales." He added, "Although the annual net interest income of the banking sector will steadily increase, if household loan demand does not recover amid rising funding costs, the margin expansion in the second half of the year may be lower than expected."