[Corporate Loan War] ① A Silent War... Increased by 60 Trillion Won in One Year

Shift from Household Loan Regulations to Corporate Loans
Companies Prefer Low-Interest Bank Loans over Corporate Bonds

"With some banks leading the way, each company is aggressively pursuing corporate loans, intensifying competition among banks. Even corporate loans worth 300 million KRW for small and medium-sized enterprises have bidding attached."

The banking sector is engaged in a fierce battle to expand its share in the corporate loan market. This comes at a time when the asset growth strategy centered on household loans has hit a limit due to the real estate market slump and government loan regulations.

According to the financial sector on the 25th, the outstanding balance of corporate loans (large and small-to-medium enterprise loans) at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) stood at 747.4893 trillion KRW as of the end of last month, an increase of 8.74% compared to the same period last year (687.4271 trillion KRW). Corporate loan balances increased by more than 60 trillion KRW in one year.

By category, the increase in loans to large corporations, which have relatively low credit risk, was steep. The outstanding balance of large corporate loans was 129.4044 trillion KRW, up 33.75% from 96.7491 trillion KRW the previous year. Loans to small and medium-sized enterprises also rose 4.64% to 618.0849 trillion KRW. Loans to individual business owners (including SOHO), a type of corporate loan, also increased by 1.45% to 318.1928 trillion KRW, but the growth was less than that of large and small-to-medium enterprise loans.

The reason banks are actively increasing their share of corporate loans is that household loans, which have led asset growth through the COVID-19 pandemic and the real estate boom, have hit a wall. Household loans are declining amid a sustained high-interest-rate environment. The outstanding balance of household loans was 680.812 trillion KRW, down 2.25% from 696.4509 trillion KRW the previous year. This decline is due to reductions in group loans, jeonse (key money deposit) loans, and household credit loans caused by the high interest rates.

The continued high-interest-rate environment is also cited as a main reason why non-prime companies are shifting from issuing corporate bonds to bank loans for funding. According to the Korea Financial Investment Association, as of the 19th, the 3-year corporate bond A- grade yield was 6.023%, returning to the level seen at the beginning of the year when bond market liquidity was tight. This is a 69 basis point (1bp=0.01%) increase from the year's low of 5.331%. As a result, corporate bond issuance has also shifted to net repayments since July.

Banks are also actively responding. So far, Hana Bank has been the most aggressive in corporate lending. As of the end of last month, Hana Bank's outstanding loans to large and small-to-medium enterprises totaled 183.0576 trillion KRW, a 36.53% increase compared to the same period last year. This surpasses KB Kookmin Bank (6.81%), Shinhan Bank (8.28%), Woori Bank (5.32%), and Nonghyup Bank (8.16%). Large corporate loan balances increased by 53.70%, and small-to-medium enterprise loan balances rose by 9.19%.

Recently, Woori Bank has also launched an aggressive sales campaign under the banner of "Rebuilding the Corporate Finance Powerhouse." Woori Bank plans to increase the proportion of corporate loans to 60% of total loan assets by 2027, setting annual loan growth targets of 30% for large corporations and 10% for small and medium-sized enterprises. To this end, it is opening strategic branches in areas densely populated with major companies. In July, the Banwol·Siwha BIZ Prime Center was opened, and additional branches are planned for Namdong·Songdo and Changwon·Noksan areas.

A representative from a commercial bank said, "While policy funds such as special home mortgage loans and some regulations have been eased, leading to an increase in mortgage loans, the recent suspension of 50-year maturity mortgage loans makes it difficult to further expand the market share," adding, "The expansion of corporate loans is expected to continue for the time being."