Service Sector Loans Surge Amid Economic Slump...Manufacturing Loan Growth Hits Lowest in a Year
Bank of Korea '2019 4th Quarter Depository Institutions Industry Loans'
[Asia Economy Reporter Kim Eun-byeol] As the economic downturn continues, the increase in loans for the manufacturing sector, a key industry of our economy, recorded the lowest level in a year. It was found that the service sector, including wholesale and retail, accommodation, and food services, is sustaining itself through loans.
According to the "Loans by Industry of Deposit-taking Institutions in Q4 2019" released by the Bank of Korea on the 4th, the outstanding loan balance by industry of deposit-taking institutions at the end of Q4 last year was 1,207.8 trillion KRW, an increase of 24.1 trillion KRW compared to the previous quarter. The increase was larger than the 20.5 trillion KRW increase in the previous quarter.
By industry, the outstanding loan balance for manufacturing was 357.1 trillion KRW, increasing by only 100 billion KRW compared to the previous quarter. The increase in manufacturing loans sharply declined compared to the 1.9 trillion KRW increase in Q3 last year. Compared to the same period last year, it increased by 3.6%. The increase in manufacturing loan balances was at its lowest level since a 2.2 trillion KRW decrease in Q4 last year.
A Bank of Korea official explained, "Loans for metal processed products and machinery equipment decreased by 200 billion KRW, and loans for petroleum, chemicals, pharmaceuticals, and plastics decreased by 500 billion KRW, causing some sectors to shift to a decrease in loans." By purpose, although the increase in facility fund loans rose from 400 billion KRW to 1.2 trillion KRW, working capital loans turned to a decrease of 1.1 trillion KRW, reducing the overall increase.
On the other hand, the outstanding loan balance for the service sector was 741.9 trillion KRW as of the end of last year, the largest since related statistics began in 2008. The increase expanded from 16.1 trillion KRW to 22.7 trillion KRW. The growth rate was also the highest since Q1 2009 (11.1%).
The increase expanded in industries such as wholesale and retail, accommodation and food services (6.7 trillion KRW), finance and insurance (4.7 trillion KRW), and information and communication (1.2 trillion KRW). By purpose, both working capital (13.5 trillion KRW) and facility funds (9.1 trillion KRW) saw expanded increases.
Looking at service sector loans by banking sector, loans from deposit banks increased by 12.7 trillion KRW, and loans from non-bank deposit-taking institutions grew by 10 trillion KRW. As the number of self-employed borrowers in the secondary financial sector increases, concerns are rising that their loans may become non-performing.
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Loans for the construction industry decreased by 100 billion KRW, turning to a decline. A Bank of Korea official explained, "The increase in loans for general construction companies shrank, and loans for specialized construction businesses turned to a decrease of 500 billion KRW."
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