This article was displayed on the ChosunBiz MoneyMove (MM) site at 4:17 p.m. on Jun. 16, 2026.
As corporations turn to bank loans instead of issuing corporate bonds, the debt capital market (DCM) is shrinking fast. Analysts say lending has become more favorable at banks, especially for high-grade corporations, as the recent rise in Treasury yields has increased the expense of raising corporate bonds, while banks have actively moved to expand corporate finance.
According to the investment banking (IB) industry on the 16th, only two public corporate bond bookbuildings are scheduled for this week and next: SeAH Steel (A+) and Hotel Lotte (AA-). SeAH Steel will conduct a 80 billion won bookbuilding on the 17th, and Hotel Lotte will conduct a 100 billion won bookbuilding on the 23rd. The industry says activity is notably quiet compared with previous years, considering the end of the first half is approaching. Even high-grade corporations are increasingly delaying bond issuance or scaling down deal sizes.
The market points to rising interest rates as the biggest reason. The three-year Treasury yield has recently climbed to the 3.3% range. Corporate bond yields add a credit spread on top of that. AA-rated corporations typically pay an extra 30–70 bp over Treasurys, while A-rated corporations pay 100 bp or more. In practice, more AA-rated three-year corporate bonds are being priced in the high-3% to low-4% range, and A-rated in the mid-4% or higher.
By contrast, commercial banks are said to be offering corporate loans in the high-3% to low-4% range to blue-chip large corporations and mid-sized corporations. Considering the securities registration, bookbuilding, underwriting fees and other steps that accompany bond issuance, the actual funding expense is often lower with bank loans. From a corporation's perspective, there is less reason to choose a public bond that may or may not draw demand depending on market conditions.
A large securities firm official said, "With rates up more than 70 bp from the end of last year, the expense of issuing corporate bonds has risen sharply," and added, "For corporations, bank lending rates are often lower than for corporate bonds, so even corporations that used to issue bonds are turning to bank borrowing."
Banks' strategies to expand corporate lending are also having an effect. Recently, banks have needed new revenue sources due to tighter household loan regulations and reduced real estate finance. In line with the financial authorities' emphasis on "productive finance," they are actively pushing to expand corporate lending. According to the Bank of Korea, the outstanding loan balance to corporations at banks reached 1,408.3 trillion won in May, up 10.6 trillion won from the end of April. The market views a significant portion of this as reflecting demand from corporations choosing loans instead of bonds.
The recent stock market rally also appears to be a factor, with retail funds moving from bonds to stocks. In particular, the corporate bond market rated A and below, and the additional tier-1 (AT1) and hybrid capital securities markets, where retail investors had a high share, are seeing a direct hit from reduced investor demand.
An IB industry official said, "In the past, corporations first turned to the bond market and borrowed only the shortfall from banks, but recently it's the opposite," and explained, "As competition among banks for high-grade corporations has intensified, lending rate terms are being offered quite aggressively."