Corporate Loans at Five Major Banks Top 900 Trillion Won... Large-Company Loans Up 20%, Self-Employed Loans Up 0.6%

Five banks increased corporate loans by 55.7 trillion won this year
Large companies accounted for 62.9% of the increase in corporate lending
Interest rate gap between loans to large companies and SMEs widened to 0.26 percentage points

Corporate loan balances at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori and NH NongHyup) have surpassed 900 trillion won for the first time. The increase is attributed to banks expanding their corporate lending as the government tightened household loan management this year and emphasized productive finance, while companies also turned to bank loans instead of issuing corporate bonds with high interest costs. However, more than 60% of the total increase in corporate loans this year went to large companies. As a result, loans to large companies have risen by more than 20% from the end of last year, while loans to small and medium-sized enterprises (SMEs), including sole proprietors, have increased by just over 3%, and loans to sole proprietors by less than 1%. The differences in access to financing by company size are becoming increasingly pronounced.

According to the financial sector on November 3, corporate loan balances at the five banks totaled 900.4025 trillion won at the end of October. That was an increase of 55.6771 trillion won, or 6.59%, from 844.7254 trillion won at the end of last year. This is the first time corporate loan balances at the five banks have exceeded 900 trillion won.

Large-company loans led the growth in corporate lending this year. The balance of loans to large companies rose by 35.008 trillion won, or 20.56%, from 170.2992 trillion won at the end of last year to 205.3072 trillion won at the end of October. Over the same period, loans to SMEs increased by 20.6691 trillion won, or 3.06%, from 674.4262 trillion won to 695.0953 trillion won. As a result, loans to large companies accounted for 62.9% of this year's increase in corporate lending. With the increase in large-company loans reaching about 1.7 times that of SME loans, the benefits of expanded corporate lending have not been evenly distributed across company sizes.

Even among SMEs, lending to self-employed people has grown more slowly. The balance of loans to sole proprietors edged up by just 1.9384 trillion won, or 0.60%, from 324.4325 trillion won at the end of last year to 326.3709 trillion won at the end of October. While corporate lending overall increased by more than 6%, lending to self-employed people effectively remained flat.

Compared with the previous month, corporate lending also rose by 8.866 trillion won, or 0.99%, from 891.5365 trillion won at the end of September. This was the highest month-on-month growth rate in two years and four months, since June 2024, when it stood at 1.00%. Loans to large companies rose by 3.8438 trillion won, or 1.91%, from 201.4634 trillion won to 205.3072 trillion won. Loans to SMEs increased by 5.0222 trillion won, or 0.73%, from 690.0731 trillion won to 695.0953 trillion won. In contrast, loans to sole proprietors edged up by just 421.5 billion won, or 0.13%, from 325.9494 trillion won to 326.3709 trillion won. In other words, although SME loans increased by more than 5 trillion won in a month, the increase in loans to sole proprietors fell far short of that amount.

Banks are increasing corporate lending in line with the government's push to strengthen productive finance, but the cost of financing for SMEs and self-employed people is rising as interest rates are set according to borrowers' creditworthiness and repayment capacity. According to the Bank of Korea, in September the average interest rate on newly issued loans by deposit-taking banks was 4.37% for large companies and 4.63% for SMEs. The interest rate gap between loans to large companies and SMEs widened from 0.05 percentage points in December 2024 to 0.16 percentage points in December last year, and then to 0.26 percentage points in less than a year. Self-employed people also face high interest costs, depending on the type of loan. According to figures published on the Korea Federation of Banks' consumer portal, average interest rates on loans to sole proprietors secured by tangible collateral at the five banks range from 4.26% to 4.56%, while average rates on unsecured loans range from 4.53% to 6.01%. When other commercial banks, regional banks and internet-only banks are included, some lenders have average rates exceeding 6%.

Rising delinquency rates on SME loans are also weighing on banks' efforts to expand lending. The pressure on banks' asset quality has increased as more SMEs have seen their ability to repay weaken amid high interest rates and a slowing economy. At the end of the third quarter of this year, the simple average delinquency rate on SME loans at the five banks was 0.60%, up 0.02 percentage points from the previous quarter. This was the highest level in nine years and six months, since the first quarter of 2017, when it was 0.65%. The overall corporate loan delinquency rate also rose by 0.04 percentage points over the same period, from 0.45% to 0.49%. The delinquency rate on loans to large companies also climbed from 0.08% to 0.18%, its highest level since the second quarter of 2021. Banks say, however, that the rise in delinquency among large companies differs in nature from that among SMEs, as it reflects temporary factors, including the workout, or corporate restructuring, and rehabilitation proceedings involving affiliates of JoongAng Group.

The bar for SMEs and self-employed people seeking financing is likely to rise further. There is speculation that the Bank of Korea's Monetary Policy Board may raise the current benchmark interest rate of 3.00% at its meeting on November 26, while funding rates, including those on bank bonds, remain high. "With SME delinquency rates high, banks have little choice but to increase lending to large companies, where they can demonstrate results in productive finance," a banking industry official said. "Unless the government expands policy-backed loans as it did during the COVID-19 pandemic, it will be difficult for banks to increase lending to SMEs and self-employed people to levels comparable to those for large companies." The official added, "Expanding policy loans through the government and regional credit guarantee foundations would reduce the burden on both banks and SMEs and self-employed people."

This content was produced with the assistance of AI translation services.