It has been found that savings banks and Saemaul Geumgo have steadily reduced loans to small and medium-sized enterprises over the past seven months. As the economy worsens and the arrears rate for small and medium-sized enterprise loans rises, it appears they have decreased the handling of related products for the sake of soundness management.
According to the Bank of Korea, as of June, the balance of savings bank loans to small and medium-sized enterprises (based on a monthly average) was 49.7 trillion won. It has continuously decreased from 53.7 trillion won in December of last year without any rebound. Saemaul Geumgo showed the same trend. The balance of loans to small and medium-sized enterprises from Saemaul Geumgo in June of this year was 104.3 trillion won, steadily decreasing from 108 trillion won in December of last year.
The arrears rate for small and medium-sized enterprise loans is increasing due to a decline in the domestic economy. According to the Financial Supervisory Service, the arrears rate for loans to small and medium-sized enterprises from domestic banks (based on loans in arrears for more than one month) was 0.95% as of May, higher than 0.15% for large corporations. Even looking solely at the arrears rate for bank loans, it soared nearly twice from 0.51% in mid-2023 to May of this year. The Statistics Korea reported that small manufacturing production in May fell by 4.7% compared to the same month last year, while inventory increased by 0.5%. Production in the small service sector increased by 0.6% in the same month, but the growth rate slowed compared to the same period last year (1.3%).
Savings banks and Saemaul Geumgo, with deteriorating soundness, are in a situation where they must significantly reduce loans with high arrears rates. In the first quarter of this year, 79 savings banks recorded an arrears rate of 9%, the first time surpassing 9% in ten years since 2015. The overall arrears rate for Saemaul Geumgo last year was 6.81%, an increase of 1.74 percentage points compared to the previous year. This is due to the ongoing fallout from large-scale real estate project financing (PF) failures.
As the funding channels for new corporations are increasingly narrowing, there are forecasts that the management environment may become even more challenging. According to the '2025 Q2 Loan Behavior Survey' released by the Bank of Korea, corporate loan demand is expected to rise, particularly for small and medium-sized enterprises, due to uncertainty in the domestic and external economy and poor business conditions. The small and medium-sized enterprise loan demand index rose from 19 in the first quarter to 25 in the third quarter.
A source from a savings bank noted, "Due to the economic downturn, many small and medium-sized enterprises do not have high credit ratings or quality collateral, making it difficult for financial institutions to easily increase loans."