Securities Firms' Corporate Credit Extension at 14 Trillion Won... Insufficient SME Funding Remains a Challenge

Significant Increase in Corporate Credit Extensions by Comprehensive Financial Investment Business Operators Over 7 Years
From 400 Billion KRW in 2013 to 14.3 Trillion KRW in 2020

[Asia Economy Reporter Koo Eun-mo] Corporate credit extensions by comprehensive financial investment business operators (CIBOs) have significantly increased over the seven years since the system was introduced, but challenges such as minimal funding supply to small and medium-sized enterprises (SMEs) have been pointed out.

According to the Financial Supervisory Service (FSS) as of the end of June, the total amount of corporate credit extensions by CIBOs was 14.3 trillion KRW, a significant increase compared to 400 billion KRW in 2013. This accounts for 35.5% of the CIBOs' own capital of 40.2 trillion KRW.

By type, credit extensions related to SMEs and corporate finance amounted to 9.8 trillion KRW, while general loans to large corporations and others were 4.5 trillion KRW. SME credit extensions were 7.4 trillion KRW, accounting for 51.7% of total corporate credit extensions; however, pure SME credit extensions excluding special purpose companies (SPCs) and real estate (7.1 trillion KRW) were only 2.0% of the total, amounting to 280.9 billion KRW. Credit extensions related to corporate finance were 4.7 trillion KRW, of which project financing (PF) loans and underwriting finance accounted for most (92.5%) at 4.3 trillion KRW.

The FSS stated, "Although corporate credit extensions have grown quantitatively due to the introduction of the CIBO system, the actual funding supply to SMEs is minimal in qualitative terms, and the core role of investment banks in actively assuming risks such as supplying venture capital is somewhat insufficient. If CIBOs do not perform roles commensurate with the incentives provided, it is necessary to consider institutional improvements that can restrict them."

The CIBO system was introduced in October 2013 to enable active roles in the corporate finance market based on sufficient capital strength. For CIBOs, new funding methods such as issuance of commercial papers and comprehensive investment accounts were permitted starting in 2017, following the commencement of corporate credit extension operations in 2013. In 2018, the credit extension limit was expanded from 100% to 200% of own capital, among other various incentives. Since the system's implementation, a total of eight companies have been designated as CIBOs.

By company, Meritz Securities (115.8%), NH Investment & Securities (45.1%), and Korea Investment & Securities (37.8%) had the highest credit extension ratios relative to their own capital, while Hana Financial Investment (8.2%), Samsung Securities (17.3%), and Mirae Asset Daewoo (22.1%) remained at relatively low levels.

Real estate-related corporate credit extensions amounted to 6 trillion KRW, accounting for 41.9% of total corporate credit extensions. Of this, PF credit extensions were 3.3 trillion KRW (23.0%), and non-PF real estate credit extensions such as operating fund loans to real estate development corporations were 2.7 trillion KRW (18.9%).

Additionally, secured corporate credit extensions amounted to 13.2 trillion KRW (92.4%), unsecured were 1.1 trillion KRW (7.6%), and interest rates of 4-6% accounted for most at 9.5 trillion KRW (66.6%), followed by 7-9% (1.89 trillion KRW) and variable rates (1.22 trillion KRW).

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