Banks pivot to corporate loans amid household loan restrictions

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By Lee Yeon-woo

As financial authorities apply breaks on record-high housing loans, the banking industry is pivoting its strategy to focus on corporate loans.

According to sources within the financial sector, the corporate loan balance of the five major banks ― namely KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup Bank ― stood at 747.4 trillion won ($563.8 billion) as of August. This represents an increase of about 8 trillion won compared to the previous month, marking the second-highest month-to-month increase.

This surge is largely attributed to financial authorities' intensified efforts to limit household loans. With household debt reaching a concerning level of 1,862.8 trillion won as of the second quarter of this year, financial authorities are tightening their grip on the banking industry, curbing the disbursement of loans.

“Increasing the proportion of household loans is challenging at the moment due to the restrictions. Such an environment is prompting banks to shift toward a greater proportion of corporate loans (for profitability),” a banking industry official said.

The inclination of corporations to seek loans from banks is also influencing the trend. Because of high interest rates, companies are finding it hard to issue corporate bonds, even when enticing rates are on offer. Consequently, they are turning to banks for financing needs.

“Relative to fixed-rate corporate bonds, there is a growing preference for bank loans that come with variable interest rates and shorter maturities,” noted the Bank of Korea in its quarterly report submitted to the National Assembly, Thursday.

CEOs of financial groups are increasingly recognizing corporate loans as a crucial component of their future growth strategy.

During his New Year's address, Hana Financial Group Chairman Ham Young-joo emphasized the need to maximize the group's strengths, particularly in corporate loans, for the upcoming year. Subsequently, Hana Bank established four regional branches to bolster its business footprint.

Woori Financial Group is also joining the fray. It aims to reclaim the top spot in the corporate loan market by 2027. On Thursday, Woori pledged financial support of 4 trillion won to handpicked blue-chip companies over the next five years.

However, some raise concerns that the aggressive expansion could compromise the banks' solvency, especially as a rising number of corporations grapple with debt repayment in the face of recession. Bankruptcy was declared by 724 corporate entities in the first half of this year alone, marking a 60.2 percent increase compared to the same period last year.