It has been revealed that the outstanding corporate loans of the five major commercial banks in South Korea have surged by over 65 trillion won since the beginning of this year. With the government and financial authorities seeking to restrain household loans, there is increasingly intense competition among banks as they shift their focus to corporate loans.
According to financial sources on Dec. 4, the outstanding corporate loans of the five major banks -- KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup -- amounted to 768.93 trillion won (US$588.54 billion) as of the end of November. This represented an increase of 4.61 trillion won compared to the previous month’s total of 764.32 trillion won. Compared to the end of last year at 703.73 trillion won, the outstanding corporate loans have increased by 65.2 trillion won, continuing to rise for 11 consecutive months this year. In contrast, the outstanding household loans during the same period have decreased by 2.15 trillion won from 692.53 trillion won to 690.39 trillion won.
As financial authorities apply brakes to the expansion of household loans, banks are shifting their lending strategies from households to corporations. Simultaneously, businesses are opting for bank loans instead of issuing corporate bonds, contributing to a steady increase in outstanding corporate loan balances.
Breaking down by the size of business, the outstanding balance of loans to small and medium-sized enterprises, including loans to individual business owners, has increased by 32.4 trillion won to 630.61 trillion won since the beginning of this year. In contrast, loans to large enterprises have decreased by 32.79 trillion won to 138.31 trillion won. Among the banks, KB Kookmin Bank has the largest corporate loan portfolio, amounting to 175.6 trillion won. It is followed by Hana Bank with 159.17 trillion won, Shinhan Bank with 156.11 trillion won, Woori Bank with 142.3 trillion won, and NH NongHyup Bank with 135.76 trillion won.
The issue lies in the increasing number of companies facing challenges as they either switch to higher interest loans when their loans mature, or find themselves in a situation of enduring high-interest rates. This has led to a growing trend of companies shutting down their businesses due to the limitations imposed by the persistently high interest environment.
According to the Bank of Korea, the outstanding balance of loans to small and medium-sized enterprises (SMEs) from deposit banks reached a record-high of 998 trillion won as of the end of October this year, representing an increase of 3.8 trillion won compared to the previous month. The figures for the end of November have not been released yet. Given the recent growth trend, however, the figures are expected to surpass the 1 quadrillion won mark.
The interest rates on corporate loans are also on an upward trend. As of October, the average interest rate for new SME loans from deposit banks increased for the second consecutive month, reaching 5.35 percent. The interest rate for SME loans rose from 2.89 percent in December 2020, the first year of the COVID-19 pandemic, to 3.37 percent in December 2021, and further surged to 5.76 percent in December of the last year. Interest rates for loans to both large and small businesses, including corporate loans, have exceeded the 5 percent threshold for 13 consecutive months since October of the previous year.
The burden of loan interest on businesses is leading to an increase in delinquency rates. According to the Financial Supervisory Service and the Supreme Court, as of September this year, the delinquency rate for SME loans from deposit banks stood at 0.49 percent, showing a 1.8-fold increase compared to the previous year’s rate of 0.27 percent. This figure had risen to 0.55 percent in August but slightly decreased in September, partly attributed to end-of-quarter adjustments and disposals.
With the average interest rates for loans to SMEs maintaining levels in the 5 percent range, the increasing delinquency rates have led to a record number of SME bankruptcy filings this year. From January to October, the number of corporate bankruptcy filings received by courts nationwide reached 1,363 cases, marking a sharp increase of 66.8 percent compared to the same period last year. This is the highest number since the available statistics from 2013.