Household Loan Surge Curbed While SME Loans Explode

Last Month, SME Loans at 5 Major Banks Increased by 3.1248 Trillion KRW
Household Loans Increased by Only 1.2996 Trillion KRW

[Asia Economy Reporters Sunmi Park and Kiho Sung] Amid increasing pressure to manage household debt, banks are focusing on corporate loans instead of further expanding household loans, which are difficult to increase, leading to a surge in loans to small and medium-sized enterprises (SMEs).

According to the financial sector on the 2nd, the outstanding SME loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 524.3904 trillion won as of the end of June, up 3.1248 trillion won from 521.2655 trillion won at the end of May.

All four major banks except Nonghyup Bank significantly increased their SME loans. In particular, Shinhan Bank showed the largest increase in SME loans among commercial banks, with SME loans rising by 1.5701 trillion won, while mortgage loans and credit loans increased by only 3.8 billion won and 5.1 billion won, respectively.

SME loans at the five major banks have continued to surge, maintaining a monthly increase of between 3 trillion and 6 trillion won this year, driven by funding demand related to COVID-19.

This shift is due to banks finding it difficult to actively increase household loans as the government and financial authorities intensify pressure to manage household debt. Additionally, at a time when Environmental, Social, and Governance (ESG) management has become important, banks recognize supporting SMEs facing management difficulties as a social responsibility, which has also influenced this trend.

Household loans in June increased compared to May, when they decreased for the first time in four years and three months, but the amount of increase was small, clearly showing signs of restraint.

Last month, the outstanding household loans at the five major banks amounted to 689.1073 trillion won, an increase of only 1.2996 trillion won from 687.8076 trillion won the previous month. The two main pillars of household loans, personal credit loans, stood at 139.0294 trillion won, increasing by only 53.82 billion won from the previous month, and mortgage loans rose by 65.17 billion won to 485.7599 trillion won. This completely contradicted market expectations that there would be a rush for household loans before the implementation of the new household debt management plan on the 1st of this month, which expands the application of the Debt Service Ratio (DSR) 40% rule, lending only as much money as borrowers can repay.

As banks have entered a permanent household loan management system by reducing preferential interest rates or suspending the sale of some loan products, voices are growing that the explosive growth in household debt will no longer be seen, while SME loans are expected to maintain their current growth trend for the time being. Financial Services Commission Chairman Eun Sung-soo emphasized to bank CEOs the day before, saying, "In a low-interest-rate environment, it is a time when risk management for interest rate increases is necessary, and meticulous household debt management is required in the second half of the year," adding, "I earnestly ask that unnecessary household loan issuance be minimized."

However, concerns are growing that the rapid increase in SME loans by banks could become a financial risk trigger, as nearly half of SMEs are unable to pay even the annual interest with their earnings, Bank of Korea Governor Lee Ju-yeol has set the timing for a base rate hike within this year, and COVID-19 financial support is scheduled to end in September.

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