Bank corporate loans rise 47% in first seven months of 2024

[Photo by Han Joo-hyung]

Corporate loans from South Korea’s five major banks increased by approximately 51 trillion won ($38.22 billion) during the first seven months of 2024, data showed on Wednesday, an indication of the ongoing competition among Korean banks in the corporate lending market.

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

According to an analysis by Maeil Business Newspaper on Wednesday, the corporate loans from the five major commercial lenders in the country increased by 50.91 trillion won from the beginning of the year to July. This is 47 percent higher than the increase of 35.22 trillion won in the same period a year ago. This growth is attributable to banks focusing on corporate lending as financial authorities intensified the management of household loans.

By bank, Shinhan Bank saw the largest increase with 15.95 trillion won, followed by Hana Bank (12.81 trillion won) and Woori Bank (11.52 trillion won). KB Kookmin Bank, traditionally strong in corporate loans, saw an increase of only 7.26 trillion won.

Shinhan Bank’s aggressive expansion in corporate lending is of note. While KB Kookmin Bank, which holds the largest balance of corporate loans, slowed down due to issues related to equity-linked securities (ELS) in the first quarter of 2024, Shinhan Bank capitalized on the opportunity.

Woori Bank also strengthened its corporate finance by launching specialized channels for small- and mid-size enterprises (SMEs). The bank’s “Biz Prime Centers,” which are specialized channels for SMEs, hit a corporate loan balance of 1.64 trillion won within a year since Chief Executive Officer Cho Byung-kyu set the goal of revitalizing the bank’s corporate finance sector. Of the eight Biz Prime Centers, the Banwol- Sihwa National Industrial Complex branch attracted over 1 trillion won in SME loans.

Hana Bank, which had aggressively targeted SMEs and self-employed individuals until 2023, appears to have slowed down in 2024. It increased its corporate loan balance by over 20 trillion won in 2023 but saw an increase of only about 300 billion won in July 2024 as concerns about rising delinquency rates among its SME and self-employed borrowers rose.

KB Kookmin Bank is still the top lender in absolute corporate loan balances but has not been as aggressive in corporate lending in 2024 due to issues such as the need to reduce risk-weighted assets (RWA) following the ELS crisis in the first quarter.

There is a trend towards focusing more on large corporations rather than SMEs in corporate lending Across the banking sector due to the need to reduce risk-weighted assets.

The total loan balance for SMEs and self-employed individuals at the five major banks stood at 656.16 trillion won as of the end of July 2024, about four times the 162.07 trillion won loan balance for large corporations. However, the increase in loans in 2024 to date was similar, with large corporations borrowing 25.64 trillion won and SMEs and self-employed individuals borrowing 25.27 trillion won.

While banks have competitively increased corporate lending, there are also side effects, such as an increase in the share of non-performing loans. There are growing concerns that this intensifying competition in corporate lending could deteriorate banks’ financial soundness.

According to the semi-annual reports of the four major banks (KB Kookmin, Shinhan, Hana, and Woori), their ratio of loans classified as non-performing (delinquent for more than three months) in corporate lending rose to 0.33 percent at the end of the first half of 2024, up 0.02 percentage points from 0.31 percent at the end of the previous year. It was 0.07 percentage point higher than 0.26 percent at the end of 2022.

The amount of non-performing corporate loans at the four major banks increased by 16.2 percent to 2.81 trillion won at the end of the first half of the year, compared to 2.42 trillion won at the end of the previous year. This increase far exceeds the 12 percent increase in non-performing household loans over the same period.