Notable Jump in Household Loans
The authors are analysts of KB Securities. They can be reached at scyoo@kbfg.com and cygun101@kbfg.com, respectively. -- Ed.
Deposit banks’ August loan balance at KRW1,909tn (+11.1% YoY)
In August, deposit banks’ loan balance outpaced our projection, climbing to KRW1,909tn (+KRW17.7tn MoM/+11.1% YoY). Commercial & Industrial loans rose to KRW961.0tn (+12.2% YoY), with loans to large companies (KRW178.3tn; +16.9% YoY) continuing to lead growth and loans to SMEs (KRW782.7tn; +11.1% YoY) maintaining their brisk pace. Household loans reached KRW948.2tn (+10.0% YoY), with home mortgage loans at KRW695.9tn (+KRW6.1tn MoM/+9.6% YoY) and non-mortgage loans at KRW252.4tn (+KRW5.6tn MoM/+11.0% YoY).
Notable jump in household loans; C&I loan growth slowing
We note that household loans rose more in August (+KRW11.7tn) than in July (+KRW7.7tn). C&I loans, which were the main growth contributor in 1H20, slowed to KRW5.9tn (vs. KRW8.4tn in July). Household transactions and rentals sustained household loan growth, supported by an increase in non-mortgage loans of KRW5.6tn (vs. KRW3.7tn in July) attributable to an increase in retail trading and rising living expenses. Various real estate regulations were expected to discourage home mortgage loans, but loans for jeonse (large lump-sum deposits for rental units) helped sustain growth. Low interest rates should keep household loan growth healthy. Meanwhile, the C&I loan balance grew by a brisk 16.9% YoY, but it contracted KRW0.1tn MoM because of a drop in demand for operating funds and liquidity.
Loans to the self-employed accounted for the 43.5% increase in SME loans in August, but this seems to have been a temporary development stemming from pandemic-related policies (e.g., lowered loan-deposit ratio standards and changes to risk weighting). For the time being, C&I loans will contribute more to loan growth than household loans.
Solid loan growth to sustain earnings amid falling NIM
Jan-Aug loan growth has increased 11.1% YoY, already significantly surpassing our full-year estimate of 6% YoY. The rapid growth will help banks sustain earnings amid falling NIM triggered by a drop in interest rates. The spike in loans has raised concerns for NPLs, but current delinquency rates and loan loss provisions suggest banks will continue to fare well.