Photo courtesy of Yonhap News

 

[Alpha Biz= Paul Lee] Corporate lending at South Korea’s five major banks surged by nearly KRW 7 trillion in February, marking the largest monthly increase in 20 months, as the government shifts its policy focus from real estate–driven lending toward so-called “productive finance” such as corporate loans and investment.

According to financial industry data released on March 3, outstanding corporate loans at KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH Nonghyup Bank totaled KRW 854.33 trillion at the end of last month, up KRW 6.98 trillion from KRW 847.35 trillion a month earlier.

By contrast, household lending remained largely flat, edging up just KRW 52.4 billion to KRW 765.87 trillion over the same period.

Corporate loans had declined by KRW 4.74 trillion in December but rebounded for two consecutive months this year. While January’s increase was limited to around KRW 2 trillion, February’s growth was more than 3.5 times larger than the same month last year. Combined, corporate lending expanded by KRW 9.60 trillion in January and February.

In February alone, loans to large corporations rose by KRW 4.14 trillion—the biggest increase since May last year—while loans to small and mid-sized enterprises (SMEs) climbed by KRW 2.84 trillion, the largest gain since October.

Industry officials attribute the surge to banks’ efforts to rebalance loan portfolios in line with the government’s push for productive finance. A senior official at a commercial bank said lenders are scaling back exposure to real estate and rental businesses while expanding funding for advanced strategic industries, leading regional firms and policy-backed guaranteed loans.

At the same time, tighter household lending regulations have limited growth in retail loans. Authorities are seeking to lower this year’s household loan growth target compared with last year and are considering additional measures targeting multi-homeowners and rental property operators. Regulators are also reviewing raising the minimum risk-weight floor for mortgage loans from 20% to 25%, up from 15% earlier this year.

Despite the strong corporate lending growth, concerns remain over asset quality. As of end-December, the corporate loan delinquency rate at domestic banks stood at 0.59%, down from 0.73% the previous month but 0.09 percentage points higher than a year earlier. Delinquency rates increased across large firms, SMEs and sole proprietors.

Exchange rate volatility is another risk factor. The Korean won weakened by more than 20 won against the U.S. dollar amid Middle East tensions, potentially affecting banks’ capital ratios. When the won depreciates, common equity Tier 1 (CET1) ratios typically decline, prompting banks to curb higher-risk lending such as SME loans.

Meanwhile, household lending showed minimal movement. Mortgage loan balances rose by KRW 5.97 trillion to KRW 610.72 trillion, while other household loans continued to decline. Jeonse (lump-sum lease) loans fell by KRW 102.5 billion for a sixth consecutive month, and unsecured credit loans dropped by KRW 4.34 trillion, marking the largest decline since January last year.

 

 

 

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