Korean lenders enhance corporate banking operations

[Graphics by Song Ji-yoon]

Commercial banks in South Korea are stepping up corporate banking activities such as by lowering interest rates on loans to small and medium-sized enterprises (SMEs).

According to an analysis on Wednesday, the outstanding balance of loans extended by the country’s five major banks to SMEs stood at 640.07 trillion won ($469.4 billion) at the end of March, up 5.17 trillion won from the previous month and 9.18 trillion won from the end of 2023.

The five banks are KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup.

The balance of loans to individual business owners extended by the major banks, which is included in SME loans, increased by 860.9 billion won from the previous month to 321.65 trillion won at the end of March.

The amount increased by 2.42 trillion won from the end of 2023.

The increase in the balance of loans to SMEs and individual business owners is attributable to the interest rate benefits being provided by the banks for these loans since February.

The banks have actively taken advantage of the Bank of Korea (BOK)‘s Special Support Program for SMEs to lower loan interest rates, according to the lenders.

Under the program, banks can borrow funds from the central bank at a low annual rate of 2 percent and provide loans to individual business owners and SMEs.

The average interest rates for new loans to SMEs and individual business owners extended by the five major banks fell, as recently announced by the Korea Federation of Banks.

KB Kookmin Bank cut its interest rate for new loans to SMEs to 5 percent in March, down 0.54 percentage point from 5.54 percent in January.

The interest rate for loans to individual business owners also fell by 0.65 percentage point from 5.64 percent in January to 4.99 percent in March.

Shinhan Bank also lowered its SME lending rate by 0.37 percentage point from the beginning of the year.

Nonghyup Bank is also actively strengthening its corporate finance business.

Since February, it has been offering a preferential interest rate of 0.3 percentage point to loans for SMEs and individual business owners and actively engaging in sales operations.

“We have expanded preferential interest rates to promote our early-stage corporate loan project,” Nonghyup Bank said.

Woori Bank, meanwhile, reduced its loan balance from the beginning of the year for risk management purposes.

Although overall interest rates decreased due to the general decline in bank bond yields, the rate cut made by the bank for loans to individual business owners was the smallest compared to other banks.

The trend of expanding loans to SMEs and individual business owners is also evident in the interest rate reversal with internet-only banks.

While the average new loan rates for SMEs at the five major banks were between 4.85 percent and 5.11 percent in March, Kakao Bank’s rate was relatively high at 5.49 percent, and KBank‘s was 5.31 percent.