"Due to Interest Burden, Corporate Loans at 5 Major Banks Surge by 25 Trillion Won This Year Instead of Corporate Bonds"

Decrease in Corporate Bond Issuance Due to Interest Rate Hikes
Increase in SME Loans to Boost Investment Funds

[Asia Economy reporters Sim Nayoung and Yoo Jehun] Corporate loans from the five major banks have surged by approximately 25 trillion won since the beginning of this year. Large corporations, burdened by rising interest rates on corporate bond issuance, have been knocking hard on bank doors. There has also been strong demand for loans from small and medium-sized enterprises (SMEs) seeking to increase investment funds after COVID-19. Banks, concerned about the decline in household loans, are finding relief in the rising trend of corporate loans.

As of the end of April, the outstanding corporate loans (large corporations and SMEs) at the five major banks (KB, Shinhan, Hana, Woori, NH Nonghyup) totaled 660.5858 trillion won. Compared to December of last year, this is an increase of 24.6681 trillion won. While household loans face many restrictions due to government policies such as total volume regulation, loan-to-value ratio (LTV), and debt service ratio (DSR) regulations, corporate credit remains a regulatory safe zone. Banks have ample room to expand their lending. Expanding corporate credit was a key theme in the New Year addresses of the heads of the five major commercial banks earlier this year.

The increase in loans to large corporations was particularly notable. During the same period, loans grew by 5.222 trillion won (from 82.4092 trillion won to 87.6312 trillion won). A representative from Bank A said, "The rise in interest rates has caused large corporations, burdened by corporate bond issuance, to turn to bank loans." According to the Financial Supervisory Service, the issuance of general corporate bonds in March was 1.837 trillion won, down 65.8% from the previous month. Large corporations have chosen bank loans over corporate bond issuance, which is their primary funding method, because bond yields have surged following the base rate hikes. The interest rate on unsecured 3-year corporate bonds (credit rating AA-) was 3.829% as of the 2nd. This is about 1.2 percentage points higher than at the beginning of the year (2.460%) and more than double compared to the same period last year (1.524%). A large corporation official said, "Considering external conditions such as the U.S. Federal Reserve's tightening stance, the Ukraine war, and the Shanghai lockdown, corporate bond issuance will likely become more difficult for the foreseeable future."

Loans to SMEs are fiercely competitive among banks, especially for high-quality companies expanding factories or making investments. Establishing a relationship through facility loans initially can lead to operational loans later. As of April, outstanding SME loans at the five major banks totaled 572.9246 trillion won, increasing by 119.4401 trillion won this year alone. A representative from Bank B said, "Banks are competing to increase their market share by lowering corporate loan interest rates." According to the Bank of Korea, the corporate loan interest rate at deposit banks (based on new loans in March) was 3.39%, which is 0.59 percentage points lower than the household loan rate (3.98%).

Among SME loans, the increase in individual business owner loans was 8.3232 trillion won, accounting for about one-third of the total corporate loan increase. Most of these are loans to small business owners, which banks explain are mostly policy funds related to the COVID-19 crisis rather than investments. A representative from Bank C said, "The transition team is considering establishing a 'bad bank' (a financial institution that buys non-performing loans at a discount from financial institutions to recover or sell them) in preparation for a situation where a large number of self-employed loans become non-performing loans," adding, "The increase in individual business owner loans will inevitably become a burden for banks in the future."

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