Bank lending rates to large corporations hit 10-year high

[Photo by Yonhap]

South Korean banks’ lending rates to large corporations hit a 10-year high in 2023 due to factors including a high-interest rate environment, posing a significant burden on their operations.

According to data from the Bank of Korea on Monday, deposit banks’ lending rates to large corporations in 2023 were at their highest level since 2013 at 5.21 percent. The interest rate for large corporate loans was 4.46 percent in 2013 before declining steadily to a low of 2.57 percent in 2021. But it rose to 3.97 percent in 2022 and jumped to 5.21 percent the year after.

“Due to worsening conditions in the corporate bond market last year, many companies chose bank loans for funding rather than issuing corporate bonds,” Park Yong-min, the head of the economic research team at the Federation of Korean Industries, explained, noting that the persistently high-interest rate environment and increased demand for corporate loans led to upward pressure on loan rates. “As a result, even for large companies, the rise in lending rates could have weighed heavily on their operations,” he added.

Lending to large corporations also saw a substantial increase. As of the end of 2023, the combined outstanding balance of loans to large corporations at the country’s four major banks - KB Kookmin, Shinhan, Hana, and Woori – totaled 139.31 trillion won ($104.36 billion), up 27 percent from the end of the previous year. Hana Bank’s loan balance to large corporations rose 31.5 percent to 25.08 trillion won at the end of the year, while Kookmin Bank went up 30.1 percent to 38.5 trillion won, Shinhan Bank up 25.8 percent to 30.7 trillion won, and Woori Bank up 22.8 percent to 45.02 trillion won during the same period.

The large increase in loans to large corporations, even as interest rates rise, is attributed to banks focusing their operations on relatively sound large corporations. The government’s active management of the increase in household loans, coupled with the sluggish real estate market, made it difficult for banks to operate aggressively.

Concerns about the insolvency of small and medium-sized enterprises (SMEs) also increased with the prolonged high-interest rate environment. “The increase was significant, for large corporations are more stable from a risk perspective compared to households or SMEs,” a banking industry insider said.

The four major banks’ corporate loan balances totaled 668.36 trillion won at the end of 2023, up 8.5 percent year-on-year and accounting for 54.2 percent of total loans, while their household loans rose by a mere 0.22 percent during the same period. Woori Bank’s household loan balance was 136.38 trillion won at the end of 2023, up 1.9 percent from the previous year. Kookmin Bank’s balance rose 1.5 percent to 166.5 trillion won, while Shinhan Bank and Hana Bank’s fell 0.7 percent and 0.6 percent respectively.

Meanwhile, the four major banks’ lending to SMEs grew by 4.9 percent, about one-fifth of the growth in lending to large corporations.

As the demand for loans from large corporations is expected to continue in 2024, the four major banks are expected to continue to focus on corporate lending. Hana Bank in particular set an internal policy to increase its corporate lending by 17 trillion won in 2024.