Banks flip-flop on lending to small firms amid deepening economic downturn
Automated teller machines / Yonhap
A growing number of commercial lenders are curbing loans to small- and medium-sized enterprises (SMEs). Critics say this marks a flip-flop on their earlier pledge to expand assistance to financially strained companies, market watchers said Thursday.
They say the banks are quick to outline financial packages to the tune of trillions of won for the tariff-hit small manufacturers, prompted by calls from Financial Services Commission Chair Kim Byoung-hwan. However, their liquidity crunch easing measures were mostly about lowering borrowing costs and postponing payment deadlines for export bills that are late and are highly likely to default.
Lenders say they are not able to provide assistance to the point where their financial soundness is put in jeopardy.
They also say that small borrowers are more vulnerable to defaults.
The delinquency rate for SME loans extended by local banks came to 0.62 percent as of December 2023, up from 0.48 percent a year earlier.
The country’s top five commercial lenders saw their combined principal with late interest payments rising to over 4 trillion won ($2.7 billion) in 2023, up from 3 trillion won in 2022.
According to data from the Korea Federation of Banks, the number of tech-backed loans extended by banks came to 680,231 as of February, down 5.9 percent from the previous year.
Similarly, the total outstanding balance of the loans stood at 302 trillion won, down 1.6 percent from a year earlier.
The low-interest rate loan was introduced in 2014 to support budding SMEs with significant growth potential. It constitutes about a fifth of the corporate loan total.
The trend is also illustrated by Bank of Korea data.
In March, the outstanding corporate loan balance extended by commercial lenders came to 1,324.3 trillion won, down 2.1 trillion won from the previous month.
It was the first March decline in 20 years since 2005. Large corporations’ loans dropped 700 billion won, while SME loans plunged 1.4 trillion won.
Meanwhile, Shinhan Financial, KB Financial, Hana Financial and Woori Financial pledged earlier this month to provide a combined 30 trillion won to SMEs, including exporters with a U.S. business presence.