As high interest rates and sluggish domestic demand persist, a growing disparity in corporate lending is emerging within the banking sector. While loans to large corporations have surged by over 10 trillion won in the past three months, loans to small business owners have barely increased by 600 billion won.
According to financial sector data released on September 30, the total loan balance for large corporations at the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—stood at 200.9763 trillion won as of September 28. This marks an increase of 10.6122 trillion won (5.6%) compared to the end of June, just before the Bank of Korea raised its benchmark interest rate.
The rise in corporate loans is attributed to increased borrowing costs for corporate bonds. As long-term interest rates in major countries have risen, domestic market rates have followed suit, leading to heightened demand for bank loans among companies looking to refinance or secure new funding.
Data from the Financial Supervisory Service revealed that the issuance of general corporate bonds fell sharply to 310 billion won in August, a decrease of 2.467 trillion won (88.8%) from the previous month.
In contrast, the increase in loans to small business owners has been relatively modest. The loan balance for individual business owners at the five major banks rose from 325.4948 trillion won at the end of June to 326.0611 trillion won as of September 28, an increase of only 566.3 billion won (0.2%). This is just 5% of the increase seen in large corporate loans, with two of the five major banks reporting a decline in their loan balances for individual business owners.
Financial experts attribute the slowdown in loan growth for small business owners to a combination of weakened demand for business expansion and stricter loan assessments by banks. With insufficient improvements in sales or profitability, the incentive to take on additional debt amid high interest rates is low. Additionally, banks are becoming more cautious in their lending practices, considering the risks of default and repayment capacity.
Kim Dae-jong, a professor at Sejong University's Business School, stated, "In the current high-interest environment, large corporations are increasingly turning to bank loans rather than corporate bonds, and banks are prioritizing funding for these companies, which have relatively higher credit ratings and repayment capabilities. In contrast, small business owners are facing reduced demand for funds due to declining sales from weak domestic demand and the burden of high interest rates, while banks are tightening their loan assessments based on default risks and repayment abilities."
* This article has been translated by AI.
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