[Change the Flow of Money]⑤Double the Delinquency Rate but Also Double the Profitability... The 'High Profit Secret' of U.S. Banks That Take Risks

Only 21% of U.S. Loans Are Backed by Real Estate
Active Use of 'Asset-Based Lending' Like Inventory and Receivables
In Korea, 68.5% of SME Loans Tied Up in Real Estate
Innovative Technology Alone Is Not Enough Without Collateral
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Editor's NoteThe Lee Jaemyung administration has declared a major shift toward 'productive finance.' The key is to redirect funds concentrated in real estate toward advanced and strategic industries. As global competition for technological supremacy expands into a 'capital war,' countries such as the United States, China, Japan, and those in Europe are pouring astronomical sums into strategic industries by combining national capital with private finance. In contrast, Korean finance is still criticized for remaining stuck in a conservative structure centered on real estate collateral-backed lending. There are growing concerns that continued distortions in resource allocation could lead to Korea falling behind in the technological race. In response, the government has launched the 150 trillion won 'National Growth Fund,' which combines policy and private finance, initiating a structural transformation. This article examines the necessity of productive finance, the limitations of private finance, and the policy challenges that lie ahead.

The delinquency rate on corporate loans at domestic banks is only half that of U.S. banks, but profitability indicators are also significantly lagging behind. While U.S. banks execute loans by looking at the future of businesses, utilizing various forms of collateral such as accounts receivable and inventory, domestic banks are still heavily reliant on conservative lending focused on 'safe' real estate collateral. Experts advise that banks should move away from low-risk, low-return practices and actively diversify their profit bases through more proactive financial intermediation.

Low Delinquency Rates at Korean Banks, but Profitability Is Only 'Half' That of U.S. Banks

According to the Financial Supervisory Service and the U.S. Federal Deposit Insurance Corporation (FDIC) as of April 27, at the end of last year, the corporate loan delinquency rate at domestic banks stood at 0.59%. At the same time, the corporate loan delinquency rate at U.S. commercial banks was 1.34%, more than twice as high as at domestic banks. This gap has persisted for a long time. At the end of 2023, the delinquency rate for corporate loans at domestic banks was 0.41%, and at the end of 2024, 0.5%. In comparison, U.S. commercial banks recorded 1.02% and 1.27% at those same times, respectively. Looking at the trend over the past decade, domestic banks have maintained low delinquency rates through strict risk management, while U.S. banks have operated by taking on relatively higher default risks.

However, the picture is the opposite when it comes to profitability indicators. The net interest margin (NIM) for U.S. banks was 3.3% at the end of last year, whereas domestic banks recorded only 1.51%. Return on equity (ROE) was also markedly different, with domestic banks at around 7.9% and U.S. banks at 11.8%.

While factors such as differences in domestic and foreign interest rates, account maintenance fees, and asset management fees contribute to the profitability gap between Korean and U.S. banks, the primary reason is seen as the difference in lending practices. U.S. banks are adept at 'risk-taking' operations, accepting a certain level of default risk in exchange for higher interest rates and returns. In contrast, domestic banks remain complacent with a 'low-risk, low-return' structure that minimizes potential losses through collateral and guarantees.

In the U.S., Only 21% of Loans Use Real Estate as Collateral... 'Movable Asset-Backed Lending' Is Key

The most striking difference appears in lending practices for small and medium-sized enterprises (SMEs). U.S. commercial banks utilize a diverse array of assets as collateral, beyond just real estate. According to the Federal Reserve's analytical report, "The Collateral Channel and Bank Credit," revised and published last year, as of the end of 2025, the share of SME loans in the U.S. secured by real estate collateral was only 21%.

Instead, U.S. banks actively use receivables and inventory (21%), blanket liens (20%), unsecured credit (18%), and other fixed assets (10%)—all referred to as 'asset-based lending (ABL).' A system is well established in which the value of liquid assets such as corporate inventories and receivables is precisely assessed, and funding is provided based on cash flow.

In contrast, domestic banks stand out for their lending practices rooted in the 'real estate never fails' myth. As of the end of last year, out of 657.9 trillion won in SME loans from the top five commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup), real estate-backed loans amounted to 450.4 trillion won, accounting for 68.5% of the total. The proportion of real estate collateral, which was 60.7% in 2021, has steadily increased over the past five years, intensifying the concentration.

Reliance on public guarantees is also excessively high. About 15% of corporate loans in Korea are guaranteed loans, and 94% of these are based on policy guarantees such as those provided by the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation. This has resulted in a structure where banks transfer risk to public institutions rather than evaluating business viability themselves. Kang Kyunghoon, a professor at Dongguk University’s School of Business Administration, analyzed, "U.S. banks have a strong sense that they need to 'make money' through active SME finance, whereas domestic banks focus on operating as safely as possible, leading to these differences."

No 'Credit Guarantee Fund' or 'Technology Guarantee Fund' in the U.S.... Banks Must Find Profit Sources Themselves

One decisive reason for these differences is the existence of public guarantee institutions. Korea has a highly developed policy guarantee system—such as the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation—reducing the incentive for banks to evaluate business feasibility directly. In contrast, the U.S. does not have such large-scale public guarantee institutions.

Professor Kang explained, "In the United States, there are no public institutions like Korea’s Credit Guarantee Fund or regional guarantee funds that provide guarantees to help SMEs. Banks must actively lend and make money themselves." In this process, technologies for valuing various forms of collateral beyond real estate have advanced. Kim Yongjin, a professor at Sogang University’s School of Business Administration, noted, "In the U.S., various mortgage providers and financial institutions exist alongside banks, creating fierce competition. The need for banks to actively generate profits is another factor that differentiates their structure from ours."

U.S. banks, not limiting themselves to safe real estate lending, set higher interest rates. Their business model is firmly rooted in accepting a certain level of risk to enhance profitability. Professor Kim explained, "In the U.S., shareholders will never stand by if a bank’s profitability stagnates, due to a strong culture of shareholder capitalism. The differences in shareholder culture between the two countries lead to different banking practices."

The problem is that this collateral-centric structure hinders innovative companies that have technological strength but lack real estate. Companies are thus pushed to focus on acquiring real estate instead of investing in their core technology to secure loans, and in cases of insolvency, banks focus solely on collateral recovery rather than supporting corporate restructuring.

Urgent Need for Institutional Support to Encourage Banks to Take on 'Risk'

The government is emphasizing 'productive finance' to curb household lending and channel funds into advanced and strategic industries. However, as long as the real estate collateral-centered lending structure persists, the policy’s effectiveness will inevitably be limited. Experts warn that unless structural changes accompany repeated policies such as technology finance and creative finance, there is a risk of repeating past failures.

Experts stress the need for structural transformation. They unanimously call for institutional improvements that allow for comprehensive collateralization of movable assets, receivables, and intellectual property, a reduction in dependence on policy guarantees, and strengthening banks’ capability to evaluate business feasibility. Banks should also foster systems that encourage a thorough understanding of a company’s business model and provide loans based on assessments of future growth and cash flows generated by operations.

Kim Jinseong, a researcher at KB Management Research Institute, suggested, "The Domestic Movable Asset Security Act requires separate collateralization for each asset type, leading to excessive ancillary costs such as appraisal and registration fees. The system should be improved to allow for collateralization of assets in bulk, alleviating the cost burden on banks."

The need to redesign the policy guarantee system is also being raised. Currently, domestic banks rely on the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation to directly review and issue guarantees, after which companies approach banks for loans. This structure reduces the incentive for banks to independently assess business feasibility. Professor Kang stated, "Korea’s policy finance institutions primarily act as guarantors, but this proportion should be reduced. There is a need to move away from a guarantee-centered lending model and encourage banks to play a more proactive role." This means that companies with sufficient growth and business feasibility should be issued guarantees directly, and a system should be established that allows for direct execution of loans to these businesses.

There is also a need to structurally reduce the default risk of corporate loans. Professor Kim remarked, "Rather than simply urging banks to practice productive finance, we must understand their inherent aversion to risk. We need to expand the recovery market to create an environment where banks can engage in a wider range of business lending." There is also a need to improve the current structure in which creditors’ rights are not fully protected after corporate bankruptcy. In Korea, even when creditors’ rights are not fully satisfied, existing shareholders are often allocated new shares in the reorganized company. A financial industry official said, "For banks to reduce their reliance on real estate collateral and increase business viability-based lending, a system that protects creditors’ rights first, as in the U.S., must be established." The official added, "Banks must also break away from the tendency to maintain the status quo with low-risk, low-return practices."

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