[Corporate Loans Surge] Top 5 Banks Increase by 69 Trillion Won This Year... Concerns Over Defaults

[Asia Economy Reporter Bu Yeri] Corporate loans at the five major commercial banks have increased by nearly 69 trillion won this year alone. This contrasts with a decrease of more than 15 trillion won in household loans during the same period. As of the end of October this year, the outstanding balance of corporate loans surpassed that of household loans.

On the 2nd, the outstanding balance of corporate loans at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) reached 704.67 trillion won at the end of October, surpassing 700 trillion won. This represents an increase of 9.77 trillion won compared to the end of September (694.89 trillion won). It grew by nearly 10 trillion won in just one month. The pace of increase in corporate loans is also accelerating. The monthly increases were 5.75 trillion won in August, 7.47 trillion won in September, and 9.77 trillion won in October, growing by about 2 trillion won each month. Compared to the outstanding balance at the end of last year, corporate loans have increased by 68.78 trillion won, already far exceeding last year's annual increase of 60.26 trillion won.

The rise in corporate bank loans is attributed to the Legoland incident, which blocked corporate bond issuance and tightened the funding market. Looking at loans by category, the outstanding balance of large corporate loans was 107.15 trillion won, increasing by 6.67 trillion won from the previous month and rising by 24.74 trillion won compared to the end of last year. The outstanding balance of small and medium-sized enterprise (SME) loans was 597.52 trillion won, increasing by 3.11 trillion won in one month. Compared to the end of last year, it increased by 44.04 trillion won.

[Image source=Yonhap News]

In particular, large corporate loans increased noticeably. Large corporate loans in October rose by nearly 30% compared to the end of last year. During the same period, SME loans increased by 8%. The share of large corporate loans in the total increase of corporate loans has also reversed. Of the total increase in corporate loans in October (9.77 trillion won), large corporate loans (6.67 trillion won) accounted for 68.2%. SME loans (3.11 trillion won) accounted for 31.8%. At the beginning of the year, the share of large corporations was around 23%. This is interpreted as even large corporations turning to banks as the funding market tightens.

On the other hand, household loans have decreased for ten consecutive months. The outstanding balance of household loans at the five major commercial banks was 693.65 trillion won at the end of October, down 1.44 trillion won from the previous month. Compared to the end of last year, it decreased by 15.41 trillion won.

Concerns about defaults are also emerging. This is because rising interest rates have significantly increased the interest burden on companies. According to the Bank of Korea's Economic Statistics System, about 40% of SMEs that received new loans from deposit banks in September faced interest rates exceeding 5%. Just a year ago, 90% of SMEs borrowed money at interest rates below 3% per annum. The average loan interest rate for large corporations (as of September) was 4.38%, the highest level in 9 years and 2 months since July 2013 (4.38%). The International Institute of Finance (IIF) recently warned in a report that "the era of cheap borrowing is coming to an end, and many companies are already struggling to repay their debts," adding that "thanks to low interest rates, many companies have survived with cheap loans, but going forward, as borrowing costs (interest rates) rise, defaults are likely to increase significantly."

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