I Thought We Would Borrow Less... SME Loans Increase by 44 Trillion Won This Year

Significant Increase in Loans for SMEs Compared to Large Corporations and Small Businesses
Last Year's Expected Loan Amount for SMEs Already Surpassed
Future Outlook Clouded by Triple Highs in Interest Rates, Inflation, and Exchange Rates

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[Asia Economy Reporter Minwoo Lee] Loans to small and medium-sized enterprises (SMEs) have been rapidly increasing this year. Since most SMEs expected no increase in loans last year, concerns are growing due to this unexpected financial situation.

According to the financial sector on the 4th, as of the end of October this year, loans to SMEs from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?amounted to 597.5233 trillion KRW. This is an increase of 44.0447 trillion KRW compared to 553.4786 trillion KRW at the end of last year. This increase is about 4 trillion KRW more than the combined increase in loans to individual business owners (1.5862 trillion KRW) and large corporations (2.47381 trillion KRW) during the same period.

The growth rate compared to the previous year was also significant. The increase rate in SME loans compared to the end of the previous year was about 8.0%. Although this is lower than the 30.0% increase seen in large corporations, which recently shifted sharply to bank loans due to tightening in the corporate bond market, it far exceeds the 5.0% increase rate in loans to individual business owners.

Since SMEs have poorer financial conditions than large corporations and rely heavily on external borrowing, the increase in loans is a significant burden. This is especially true in the current high-interest-rate environment. Above all, the fact that such an increase in loans was not anticipated has made the perceived situation even more difficult.

According to the ‘SME Financial Status Survey’ announced by IBK Industrial Bank of Korea at the end of last month, 74% of the 4,500 SMEs surveyed, each with annual sales of over 500 million KRW last year, expected external financing this year to be similar to last year. Only 16% responded that the situation would worsen compared to last year, a decrease from 20.8% the previous year. This means most SMEs expected their financial situation to improve this year. However, with loans from just the five major commercial banks exceeding 44 trillion KRW as of October, the scale of financing through banks this year has already surpassed the 39.6626 trillion KRW anticipated last year.

The sharp increase in loans is interpreted as a result of overlapping adverse factors, including a global supply chain problem causing raw material prices to rise amid a recession that is suppressing consumption. In particular, according to the IBK survey, SMEs planned to use 67.7% of their loan funds this year for working capital such as labor costs, rent, and various utility bills. This is why there are concerns that high interest rates and economic downturns could threaten their ‘survival.’

In fact, according to the SME Business Outlook Survey conducted by the Korea Federation of SMEs from November 14 to 21 targeting 3,150 SMEs, the November Small Business Health Index (SBHI) dropped 2.8 points from the previous month to 82.3. The Federation analyzed, “Due to the impact of the three highs?high exchange rates, high interest rates, and high prices?and the prolonged Ukraine crisis, along with expanding domestic and international uncertainties, global economic slowdown, and weakened consumer sentiment, the expectation for recovery in SMEs’ perceived business conditions is likely to weaken somewhat.”

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