Top 5 Commercial Banks Slow Corporate Loans... Managing Soundness Through 'Speed Adjustment'

Corporate Loan Growth Exceeding 10 Trillion Won in April Drops to 4.6 Trillion in August
Large Corporate Loan Increase of 3-4 Trillion Falls Sharply to Around 1 Trillion
Need for Annual Asset Growth Rate Management and Corporate Loan Risk Control Emerges

As financial authorities have been curbing household loan demand mainly in the banking sector since September, the growth of corporate loans has also slowed down. In particular, major commercial banks, which had been aggressively increasing loans to large corporations?relatively advantageous for soundness management?saw a sharp decline in August. This is interpreted as a need for risk management of corporate loans, which had been actively expanded, along with managing the annual asset growth rate, due to the unexpectedly large increase in household loan volume.

According to the financial sector on the 16th, the outstanding corporate loans of the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?amounted to 822.8715 trillion won in August, an increase of 4.643 trillion won compared to July.

The increase in corporate loans has continued steadily this year. Especially in April, the increase in outstanding loans exceeded 10 trillion won, with corporate loan balances rising from around 770 trillion won in January to over 800 trillion won by May.

Monthly figures show that corporate loan balances increased by 8.4408 trillion won in March, 10.894 trillion won in April, 7.2776 trillion won in May, 8.0251 trillion won in June, and 6.8803 trillion won in July. In particular, loans to large corporations increased by 3.2753 trillion won in March, 6.1377 trillion won in April, 3.2445 trillion won in May, and 4.4165 trillion won in June, with increases of 3.191 trillion won and 1.0782 trillion won in July and August, respectively. Overall, loans to large corporations significantly boosted the corporate loan balances.

However, from August, the growth rate of corporate loans showed signs of slowing. While loans to small and medium-sized enterprises, including individual business owners, increased by around 3 trillion won, the increase in loans to large corporations dropped to about 1 trillion won.

The background for the slowdown in corporate loans is attributed to the reduced margin for the annual asset growth target due to the surge in household loans. Each financial institution manages loans by setting an annual asset growth rate, but in August, nearly 10 trillion won of household loans surged, impacting corporate loans. In fact, the increase in won-denominated loans at the five major banks reached about 88.5 trillion won through August this year, significantly exceeding last year’s annual increase of approximately 63.5 trillion won.

As concerns about risk-weighted assets (RWA) have grown, there is also analysis that the management of the Common Equity Tier 1 (CET1) ratio?a representative capital soundness indicator reflecting loss absorption capacity?is being affected. Corporate loans have higher risk weights than mortgage loans. In the first half of the year, the CET1 ratios of the four major financial holding companies were KB Financial 13.59%, Shinhan Financial 13.05%, Hana Financial 12.79%, and Woori Financial 12.03%.

A representative from a commercial bank said, "We have steadily increased corporate loans, but the need to manage soundness indicators has grown in the second half of the year. Also, contrary to expectations, household loans have surged rapidly in the second half, making this a period to adjust the overall loan volume."