The balance of corporate loans at South Korea’s five major banks has exceeded household loans by more than 130 trillion won, marking a significant shift in the country’s lending landscape. As of the end of last month, the corporate loan balance at these banks surpassed 800 trillion won, a notable increase from 767.3139 trillion won at the end of last year.
This trend began to take shape at the end of 2022, when corporate loans first started to outpace household loans. By January this year, the corporate loan balance had reached 770 trillion won, and by March, it climbed to 785 trillion won. The latest figures show that by the end of last month, the corporate loan balance had surged to 803.3231 trillion won.
The growth in corporate loans has been primarily driven by large corporate loans. At the end of May, the large corporate loan balance of the five major banks was 154.4665 trillion won, an increase of more than 3 trillion won from the previous month. Compared to the end of last year, this represents a 13.2% increase (18.0381 trillion won) in less than half a year.
Medium-sized corporate loans, including those to small business owners, have also been on the rise. At the end of last month, the balance of medium-sized corporate loans was 648.8566 trillion won, up from 630.8855 trillion won at the end of last year. Meanwhile, the household loan balance of the five major banks at the end of May was 668.0146 trillion won, an increase of more than 5 trillion won from the previous month (662.1040 trillion won).
The shift towards corporate lending can be traced back to the regulatory environment. The South Korean government has set a policy to manage household loans within the range of nominal growth rates, and the five major financial holding companies have set a target to keep the household debt growth rate within 2%. This has led banks to seek alternatives in corporate lending.
“Banking institutions cannot afford to compromise on financial soundness, which is why the majority of corporate loans are still focused on high-quality assets,” said a financial authority official. “However, the risk associated with corporate loans is greater compared to household loans, necessitating caution.”
The delinquency rate of corporate loans at the five major banks has seen a slight increase, rising from 0.30% at the end of the first quarter of last year to 0.35% at the end of the first quarter of this year. “The rise in group delinquency rates is largely due to bridge loans from non-bank affiliates,” explained a banking sector representative. “The delinquency rate for banks has only seen a minor increase.”
Hana Bank has been particularly aggressive in increasing corporate loans centered on high-quality assets, achieving the highest net profit among commercial banks for two consecutive years until last year. Woori Bank has announced a plan to adjust the ratio of corporate loans to household loans to 6:4 by 2027.
The current economic conditions, including interest rates and growth trends, have also played a role in this shift. High-interest rates can affect both corporate and household borrowing, influencing the overall lending landscape. Additionally, the South Korean government’s policies aimed at managing economic growth and stability, including measures to support small and medium-sized enterprises (SMEs) and large corporations, have provided further impetus for banks to focus on corporate lending.
As the balance of corporate loans continues to grow, it poses both opportunities and risks for the South Korean economy. While corporate loans can drive business growth and job creation, they also carry the potential for increased financial instability. The banking sector will need to navigate these challenges carefully to maintain financial soundness and support sustainable economic growth.
