By Park Hyong-ki
A growing number of small and medium-size enterprises (SME) are taking out loans from the nonbanking sector amid heightened loan restrictions at commercial banks.
SMEs borrowed a total of 76.6 trillion won from nonbanks such as mutual savings and cooperative banks as of the end of October this year, up 31 percent from the same period a year ago, according to data by the Bank of Korea (BOK) Tuesday.
The increase rate of SME loans from nonbanks is more than fivefold that of borrowing from commercial banks in the same period.
To make matters worse, most of SMEs have been seeking loans from mutual savings banks with higher interest rates than commercial banks, despite their increasing inability to pay back their existing loans to commercial banks amid a slowdown.
SME loans from cooperative banks accounted the largest at 35.2 trillion won, followed by loans worth 22.4 trillion won from mutual savings banks. The secondary financial sector extends loans with interest of about 7 percent on average, about a 4 percentage point higher than those of commercial banks.
Facing growing household debt problem in the country, the Finance Ministry and the central bank noted that not only households but also companies are seeking loans from the nonbanking sector as commercial lenders are applying stricter credit standards amid the ongoing corporate debt restructuring.
The Financial Supervisory Service, the country’s financial regulator, selected 176 SMEs for debt workout and court receivership programs, the highest since the global financial crisis seven years ago.
With market interest rates expected to rise further and burden companies’ financing, the central bank is trapped in between the U.S. Federal Reserve’s further rate hikes next year and Korea’s soaring debt and economic problems including decreasing working population on low birth rate and rising joblessness.
Analysts say the BOK is likely to keep freezing its key base rate at least until April, or the first quarter of next year, after it can fully assess the Donald Trump administration’s economic policy.
“The central bank is unlikely to move ahead of the Fed, which could raise its rate in March next year,” said Lee Mi-sun, analyst at Hana Financial Investment.