Banks that had focused only on expanding loans to large corporations are increasing loans to small and midsize companies in step with the government's push to expand "productive finance." But some say the growth rate is only in the 3–4% range, amounting to little more than window dressing. There is also criticism that, with banks fixated on managing capital ratios as a shareholder-return metric amid the value-up (enhancing corporate value) race, they are reluctant to increase corporate lending itself.
According to the financial sector on the 30th, as of the end of September this year, Shinhan Bank's outstanding loan balance to small and midsize companies was 143 trillion 9,215 billion won, up 3.5% from the same period a year earlier (138 trillion 1,197 billion won). By contrast, the outstanding loan balance to large corporations rose only 2.5% over the same period, from 39 trillion 9,919 billion won to 40 trillion 9,844 billion won. That contrasts with increases of 25.8% and 30.6% in large-corporation loans over the past two years.
Other banks show a similar pattern. Hana Bank's outstanding loan balance to small and midsize companies was 142 trillion 6,219 billion won at the end of September, a 3.3% increase from the same period a year earlier (138 trillion 660 billion won). The growth rate of loans to large corporations was 2.6%, below the growth rate for small and midsize companies. Compared with 2023, when the growth rate of loans to large corporations was 32% and to small and midsize companies was 10%, the situation has flipped. KB Kookmin Bank also saw, as of the end of September, the year-over-year growth rate of loans to small and midsize companies at 4.3%, outpacing the 3.8% growth rate for large corporations. Woori Bank, which urgently needs to raise its capital ratio through an insurance acquisition, reduced corporate lending altogether.
Banks usually prefer lending to large corporations. That is because delinquency rates are relatively lower than for small and midsize companies, making it easier to manage asset quality. They can also secure fees from ancillary business, such as payroll accounts for executives and employees. But the situation has changed as the new administration has put emphasis on productive finance and value-up.
The government is pressing for an expansion of loans to small and midsize companies by even revising bank capital regulations. The goal is to redirect funds in the financial sector concentrated in real estate loans toward investments and loans to advanced and venture corporations. The Financial Services Commission (FSC) last month announced "directions for improving bank capital regulations" that lower the risk weight of corporate stocks held by banks to 250% from the current 400%.
When risk weights are lowered, it becomes easier to manage the common equity tier 1 (CET1) ratio, which reflects banks' soundness. Conversely, if risk weights rise and CET1 falls, the capacity for shareholder returns diminishes. Some in the financial sector say banks have reduced corporate lending itself to keep CET1 at a high level.
A bank official said, "Loans to small and midsize companies are being increased under government pressure, but there is a tendency not to significantly expand corporate lending itself, including to large corporations, in order to manage CET1," adding, "Over the past four to five years, the focus was on courting large corporations, but this year we are concentrating on value-up and shareholder returns." Another bank official said, "To manage CET1, we are increasing loans mainly to high-grade, blue-chip large corporations."