As funds from banks continue to flow steadily into real estate-related loans, an imbalance in fund allocation is emerging within corporate finance. While corporate lending is increasing, a significant portion is directed towards real estate and rental businesses, and the growth of facility funds intended for capital investment is slowing. Experts argue that the financial sector must improve its loan assessment systems and risk-sharing structures to ensure that increased lending translates into productive investments by high-growth potential companies.
According to the financial sector on the 12th, the outstanding balance of mortgage loans from the top five banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—was 623.988 trillion won at the end of last month, up 1.9% (11.4907 trillion won) from the end of last year (611.6081 trillion won). Despite the government's tightening of household loan management and banks raising their lending thresholds, the mortgage loan balance has increased for seven consecutive months from April to October. Last month alone, it rose by 1.7005 trillion won, indicating ongoing demand for funds related to home purchases.
A significant portion of corporate lending is also directed towards real estate-related sectors. As of the end of the first half of this year, loans to the real estate and rental sectors from the top five banks amounted to 223.1926 trillion won, a 3.4% increase from 215.7809 trillion won a year earlier. This represents 26% of total corporate lending.
Moreover, the increase in corporate lending is showing a trend where the share of working capital needed for existing production activities is growing compared to facility funds used for capital investment. According to the Bank of Korea's statistics on loans by deposit-taking institutions by industry, the total increase in loans across all industries decreased slightly from 30.8 trillion won in the first quarter to 30.6 trillion won in the second quarter. During the same period, the increase in facility funds dropped from 9.4 trillion won to 6.9 trillion won, while the increase in working capital rose from 21.4 trillion won to 23.8 trillion won. In the second quarter, working capital accounted for 78% of the total loan increase.
In the manufacturing sector, the supply of funds for capital investment is also slowing. The increase in manufacturing loans fell from 11 trillion won in the first quarter to 8.4 trillion won in the second quarter, while the increase in facility funds dropped from 4.4 trillion won to 1.4 trillion won during the same period.
This imbalance in fund allocation has been evident in the trends of corporate lending over the past decade. An analysis by the Korea Financial Research Institute of borrowings from financial institutions by external audit companies, excluding the finance and insurance sectors, found that total corporate lending increased from 866.9 trillion won at the end of 2015 to 1,781.7 trillion won by the end of 2024, nearly doubling. Among this, loans to the construction and real estate sectors surged from 196.7 trillion won to 577.8 trillion won, a threefold increase, while manufacturing loans grew only 50.8%, from 320.6 trillion won to 483.4 trillion won.
While corporate lending has expanded quantitatively, it has not sufficiently translated into production capacity expansion through capital investment, leading to calls for improvements in fund allocation structures. This is the backdrop for the government's emphasis on productive finance.
Financial authorities are also rationalizing capital regulations for banks to redirect funds concentrated in real estate towards productive sectors. They plan to revise the operational risk calculation standards and shorten the procedures for improving internal credit evaluation models to enhance banks' capital capacity and their ability to supply funds to productive sectors.
However, merely easing capital regulations may not be sufficient to expand productive finance. Even if banks secure lending capacity, a system that can evaluate the technology and business viability of innovative companies is necessary to provide funds to those whose growth potential and repayment ability are difficult to assess. Establishing a risk-sharing structure that allows the financial sector to bear the risks associated with corporate lending and investment is also a challenge.
Shin Yong-sang, a senior researcher at the Korea Financial Research Institute, stated, "To alleviate the concentration of funds in the real estate sector, it is necessary to consider lowering the risk weights for loans and investments in innovative companies by banks. Additionally, a specialized evaluation system for venture capital needed for selecting initial investment targets should be established, and the exit market for venture capital investments should be diversified."
* This article has been translated by AI.
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