Surviving on Debt... SME Loans Soar in October

Reference image (Source=Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] The trend of increasing bank loans to small and medium-sized enterprises (SMEs) is intensifying again. This is interpreted as meaning that more SMEs are relying on debt to endure worsening domestic and international conditions due to the impact of the novel coronavirus disease (COVID-19).

According to the financial sector on the 15th, the outstanding loans to SMEs (including sole proprietors) at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 492.7274 trillion won at the end of last month, an increase of 6.2734 trillion won compared to 486.454 trillion won at the end of September.

Loans to SMEs at the five major banks peaked in April, when the shock of COVID-19 was fully underway, surging by 8.438 trillion won. These loans increased by 7.4328 trillion won in May and then maintained a relatively stable monthly increase of 2 to 4 trillion won in the second half of the year, before soaring again last month.

The overall trend in the banking sector is similar. According to the Bank of Korea's "Financial Market Trends in October," the outstanding bank loans to SMEs at the end of last month increased by 8.2 trillion won compared to the previous month. This is the largest increase ever recorded for October.

A representative from a commercial bank said, "Even considering seasonal factors such as the Chuseok holiday, the increase is remarkable." It is also analyzed that the expansion of limits and relaxation of eligibility requirements in government and financial sector support programs have had an impact.

The financial sector is concerned that the accumulating loans could lead to large-scale defaults in the future. Measures such as the extension of loan maturities (until March next year) for small business owners and SMEs affected by COVID-19 may cause latent risks to surface.

According to financial authorities, from February this year to the 6th of this month, a total of 411,000 cases amounting to 64.8 trillion won in loans and guarantees have had their maturities extended at policy financial institutions. At commercial banks, 252,000 cases amounting to 71.9 trillion won have had their maturities extended.

This content was produced with the assistance of AI translation services.