Tighter lending rules lead to increase of corporate loans

A branch of Hana Bank in Seoul. Korea Times file

By Lee Kyung-min

The growth of household borrowing fell sharply in November, due to a combination of tightening lending rules and the central bank's key rate hike, central bank data showed Wednesday.

The continued high demand for housing, including mortgages and jeonse deposits, is serviced by non-bank financial institutions, notably insurers, card issuers and savings banks. This situation has created a ballooning effect, brought on by major commercial lenders that nearly severed the lines of credit to retail borrowers, following the guidelines of the Financial Services Commission. Unique to Korea, jeonse is a home renting system whereby tenants pay a refundable lump sum deposit ― usually equivalent to between 30 and 60 percent of the property value ― instead of a monthly non-refundable rent.

Corporate lending soared, due in large part to continued demand for business expansion by small- and medium-sized enterprises.

Data from the Bank of Korea showed that the household loan balance stood at 1,060 trillion won ($900 billion) in November, up only 3 trillion won from a month earlier.

This figure is 2.2 trillion won less than the 5.2 trillion won increase the month before. It is the slowest November growth since 2.8 trillion won in 2013, and the slowest monthly growth since May.

The mortgage loan increase was limited to 2.4 trillion won last month ― about half the 4.7 trillion won increase from the month before.

November's figure is significantly lower, compared to 4.9 trillion won last year and 6.2 trillion won in 2019.

Household borrowing in the non-bank financial institutions sector increased 2.9 trillion won, up from 1 trillion won the previous month.

Cooperatives-mediated borrowing increased by 2.1 trillion won, up significantly from the previous month's 400 billion won.

The central bank said that the sheer volume of household loan growth has slowed, but stopped short of characterizing it as a clear trend of stabilization.

Corporate loans soared to 106.84 billion won in November, up 9.1 trillion won from the previous month. This growth is the largest November increase since June 2009. It exceeds the previous monthly growth high of 6.7 trillion won, in November of last year.

A separate survey conducted by the central bank showed that more than half ― or 53 percent ― of key figures in the financial industry said that high household debt is a critical financial risk factor.

According to the survey of 80 key figures in Korea's financial industry, including employees and heads of research institutes and financial services firms, other risk factors included: inflation brought on by global value chain disruptions, tapering by the U.S. Federal Reserve and uncertainty in the real estate market.