[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 Note
The Lee Jaemyung administration has declared a fundamental shift toward "productive finance." The core of this strategy is to redirect the flow of funds—currently concentrated in real estate—toward high-tech and strategic industries. As the global battle for technological supremacy has expanded into a "capital war," the United States, China, Japan, and Europe are combining state capital with private finance to pour astronomical sums into strategic sectors. In contrast, criticism has mounted that Korean finance remains stuck in a conservative structure centered on real estate-secured lending. There are growing concerns that continued distortions in resource allocation may cause Korea to fall behind in technology competition. 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 must be addressed going forward.

The delinquency rate for corporate loans at domestic banks is only about half that of U.S. banks, but their profitability indicators also lag significantly behind. This is because, while U.S. banks extend loans based on a company's future by utilizing a variety of collateral—including accounts receivable and inventory—Korean banks remain heavily focused on "safe" real estate-backed, conservative lending. Experts advise that banks must break away from low-risk, low-return practices and diversify their profit bases through a more proactive role in financial intermediation.

Korean Banks Have Low Delinquency Rates, 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) on April 27, as of the end of last year, the delinquency rate for corporate loans at Korean banks stood at 0.59%. In contrast, the delinquency rate for corporate loans at U.S. commercial banks was 1.34% at the same time—more than twice as high as in Korea. This gap has persisted for a long time. For example, the delinquency rate for corporate loans at Korean banks was 0.41% at the end of 2023 and 0.5% at the end of 2024, whereas U.S. commercial banks recorded 1.02% and 1.27%, respectively, at the same points in time. Even looking back over the past 10 years, Korean banks have maintained low delinquency rates through rigorous risk management, while U.S. banks have accepted relatively higher default risks in their operations.

However, the profitability indicators paint the opposite picture. As of the end of last year, the net interest margin (NIM) for U.S. banks was 3.3%, while for Korean banks it was only 1.51%. Return on equity (ROE) was also markedly different: Korean banks recorded around 7.9%, while U.S. banks posted 11.8%.

While the profitability gap between Korean and U.S. banks is partially attributed to differences in domestic and overseas interest rates, non-interest income such as account maintenance and asset management fees, the main factor is often cited 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. In contrast, Korean banks remain complacent in their "low-risk, low-return" structures, minimizing the possibility of loss through collateral and guarantees.

In the U.S., Only 21% of Loans Use Real Estate Collateral... 'Movable Asset Collateral' Is the Lifeblood

The starkest difference is seen in lending practices for small and medium-sized enterprises. U.S. commercial banks utilize a variety of assets as collateral beyond real estate. According to the Federal Reserve's analysis report, "The Collateral Channel and Bank Credit," revised and published last year, the share of real estate-secured loans for U.S. SMEs stood at only 21% as of the end of 2025.

Instead, U.S. banks actively leverage "asset-based lending (ABL)," such as loans secured by accounts receivable and inventory (21%), blanket liens (20%), unsecured credit (18%), and other fixed assets (10%). A system is firmly established in which banks carefully evaluate the value of liquid assets, such as inventory and receivables, and provide funding based on cash flow.

In contrast, Korean banks exhibit a strong preference for real estate-backed lending, relying on the notion that "real estate never fails." At the end of last year, out of the 657.9 trillion won in SME loans at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup), 450.4 trillion won—or 68.5%—were secured by real estate. The proportion of real estate-backed loans, which was 60.7% in 2021, has steadily increased over the past five years, deepening the concentration risk.

Reliance on public guarantees is also excessively high. Around 15% of corporate loans in Korea are guaranteed loans, and of those, 94% rely on policy guarantees provided by institutions such as the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation. This has entrenched a structure in which banks shift risk to public institutions rather than assessing business viability themselves. Kang Kyunghoon, professor at Dongguk University’s Department of Business Administration, analyzed, "While U.S. banks have a strong sense that they must actively lend to SMEs to make money, Korean banks focus on running their operations as stably as possible, which leads to these differences."

There Are No Large-Scale Public Guarantee Institutions Like Korea's in the U.S.... Banks Must Find Profit Sources Themselves

One decisive reason for these differences is the presence or absence of public guarantee institutions. Korea has a highly developed policy guarantee system, including the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation, which reduces the incentive for banks to evaluate business viability themselves. In contrast, the U.S. lacks such large-scale public guarantee institutions.

Professor Kang explained, "The U.S. does not have public institutions like Korea's Credit Guarantee Fund, Technology Finance Corporation, or regional credit guarantee foundations that guarantee loans to help SMEs at the national level. Banks must actively make loans and earn profits themselves." In this process, technologies for evaluating various forms of collateral beyond real estate have advanced. Kim Yongjin, professor at the Department of Business Administration at Sogang University, pointed out, "The U.S. features fierce competition among a wide range of mortgage providers and financial institutions beyond just banks, which is another key difference that compels banks to generate profits more aggressively."

Since U.S. banks do not stick exclusively to safe real estate loans, they set higher interest rates. The business model is firmly rooted in accepting a certain level of risk to enhance profitability. Professor Kim noted, "In the U.S., there is a strong culture of shareholder capitalism in which shareholders never stand by if bank profitability stagnates. The differences in shareholder culture between the two countries lead to divergent business practices."

The problem is that this collateral-focused structure hinders innovative companies that possess technology but lack real estate. Side effects are emerging, such as companies prioritizing the acquisition of real estate over their core business of investing in technology to secure loans. In the event of defaults, banks tend to focus solely on collateral recovery rather than supporting corporate restructuring.

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

The government is emphasizing "productive finance," which aims to curb household lending and channel funds into high-tech and strategic industries. However, as long as lending remains centered on real estate collateral, the policy impact is likely to remain limited. Experts warn that policy initiatives such as technology finance and creative finance have been repeated in the past, but without accompanying structural change, they have failed to deliver results.

Experts stress the need for structural transformation. They agree that institutional improvements must be made to allow comprehensive collateralization of movable assets, accounts receivable, and intellectual property; dependence on policy guarantees must be reduced; and banks’ capabilities to assess business viability must be strengthened. Banks must also foster systems that enable them to understand business models, evaluate future growth potential and cash flows, and provide loans based on such assessments.

Kim Jinseong, researcher at KB Management Research Institute, suggested, "The current Movable Asset Receivables Secured Transactions Act in Korea requires individual collateral to be established for each asset type, leading to excessive ancillary costs such as appraisal and registration fees. The system should be improved to allow banks to establish collateral on assets in bulk, thereby reducing the cost burden on banks."

There is also a need to redesign the policy guarantee system. Currently, institutions such as the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation conduct their own reviews and issue guarantees, after which companies approach banks for loans. As a result, banks have little incentive to evaluate business viability themselves. Professor Kang said, "In Korea, policy finance institutions mainly act as guarantors, but their share in this role should be reduced. It is necessary to move away from the current loan guarantee-centric model and encourage banks to take the initiative." He added that for companies that have grown enough to be evaluated for business viability, a system should be established in which direct guarantees are issued and loans are executed accordingly.

There is also a need to structurally lower the default risk of corporate loans. Professor Kim remarked, "It's not enough to simply urge banks to pursue productive finance; we must understand the essence of banks, which is to avoid taking on risk." He argued that the recovery market should be expanded so that banks can be encouraged to extend a wider range of corporate loans. Improvements are also needed to the current system, in which creditors’ rights are not fully protected after corporate bankruptcy. In Korea, even when creditors’ rights are not fully satisfied, it is common for new shares of the restructured company to be allocated to existing shareholders. A financial industry official said, "The establishment of a system in which creditors’ rights are prioritized—as in the U.S.—will provide banks with more room to reduce their reliance on real estate collateral and expand business viability-based lending." The official added, "Banks, too, must break away from their comfortable low-risk, low-return practices."

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