Conglomerates Flock to Banks Amid Cash Flow Crisis... October Loan Growth Hits Record High (Comprehensive)

Corporate Loans Increased by 9.3 Trillion Won in One Month, Largest Surge as of October

[Asia Economy Reporter Seo So-jeong] Although the cost burden has increased due to rising raw material prices, the corporate bond market has frozen solid, leading to a significant expansion in companies' efforts to raise funds through bank loans. Last month, bank corporate loans increased by nearly 14 trillion won in just one month, marking the largest increase since statistics began in 2009.

According to the "Financial Market Trends in October" released by the Bank of Korea on the 9th, the outstanding balance of corporate won-denominated loans by banks stood at 1,169.2 trillion won at the end of last month, up 13.7 trillion won from the previous month. This sharp increase was driven by sustained working capital demand from companies and increased utilization of bank loans by large corporations amid the contraction of the corporate bond market. This figure far exceeds the 10.3 trillion won increase recorded in October last year.

Bank corporate loans have been rising for ten consecutive months. In particular, loans to large corporations increased by 9.3 trillion won, marking the largest increase since related statistics began in June 2009. The previous highest increase for October was 3.1 trillion won in 2015. Large corporate loans rose by 4.7 trillion won in September, but last month’s increase nearly doubled, showing a rapid surge.

Loans to small and medium-sized enterprises (SMEs) also rose by 4.4 trillion won due to ongoing working capital demand and seasonal factors such as value-added tax payments.

Hwang Young-woong, Deputy Head of the Market General Team at the Bank of Korea’s Financial Market Department, said, "Bank corporate loans increased at the largest scale for October since related statistics began in 2009," adding, "The increase in large corporate loans is also the largest for October since the statistics started."

The sharp rise in bank corporate loans is analyzed to be largely due to a spillover effect from the recent contraction in the corporate bond market. While companies’ cost burdens have increased due to rising raw material prices, sustaining working capital demand, the freezing of the corporate bond market has led companies to raise funds through bank loans. Additionally, precautionary demand for liquidity is increasing as interest rates soar, prompting companies to secure funds proactively.

Corporate bonds continued net repayments due to sluggish issuance amid weakened investor sentiment (-600 billion won → -3.2 trillion won), while commercial paper (CP) and short-term bonds shifted to net issuance centered on high-quality issues (-400 billion won → 3.1 trillion won). Regarding this, Deputy Head Hwang explained, "As the CP market became unstable, CP issued by financial institutions faced some difficulties, but CP issued by private companies was mainly from high-quality firms."