As the financial authorities cut the overall lending cap in the financial sector, top-tier banks are lowering the bar for loans to large companies while locking the gate on loans to small and midsize companies, which have relatively higher arrears rates. As a result, demand for small and midsize company loans is shifting to secondary financial institutions, where interest rates are higher.
According to the financial sector on the 9th, the outstanding loan balance to large companies at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup Bank) at the end of the first half rose 11.8% from the end of last year. Over the same period, the outstanding loan balance to small and midsize companies increased 1.2%. A banking official said, "Due to lending regulations, we are increasing loans mainly to large companies to manage asset quality."
There is a big gap in asset quality indicators between large companies and small and midsize companies. As of the end of May, the loan arrears rate at the five major banks was 0.09% for large companies and 0.73% for small and midsize companies, a difference of more than eightfold.
With top-tier banks clogged, demand for small and midsize company loans is moving to secondary financial institutions. According to the Economic Statistics System (ECOS) of the Bank of Korea, corporate loans by nonbank depository institutions (mutual finance institutions, savings banks, etc.) in the first quarter this year totaled 555.7227 trillion won. That is the largest quarterly amount in the past five years.
Because large companies mainly raise funds through commercial bank loans or corporate bond issuance and rarely use secondary financial institutions, most corporate loans by nonbank depository institutions are to small and midsize companies.
Major banks that sharply increased loans to large companies with low arrears rates are projected to post record-high results in the first half of this year. According to FnGuide, major domestic securities firms expect the first-half net profit (attributable to owners of the parent) of the four major financial holding companies to reach 10.9359 trillion won. That is a 6% increase from 10.3261 trillion won in the first half of last year.
A financial sector official said, "Higher interest margins from increased large-company lending, a rise in demand deposits driven by strong results at semiconductor corporations and securities firms, and a surge in revenue at securities affiliates are expected to contribute significantly to net profit growth."