SEOUL: Amid a record-low key interest rate, banks are increasingly expanding loans to small businesses and self-employed businesspeople, offering a relatively higher interest rate than private loans. During the first half of the year, the nation’s major banks saw a steep increase in the ratio of their small business loans as opposed to the total loan amount.
Korea Exchange Bank had disbursed small and mid-sized enterprise loans worth 21.4 trillion won ($18.1 billion) from the beginning of the year through the end of June, up 7.9 percent from the end of last year, according to officials. Total loans rose 2.7 percent in the same period.
Other top-ranking banks such as KB Kookmin, Shinhan Bank and Hana Bank also saw a 6-7 percent increase in their SME loans in the January-June period, while their average loans only rose by up to 3 percent. Woori Bank was the only among the top five banks whose growth in total loans outpaced that of SME loans, with 5.9 percent versus 5.8 percent.
KEB also recorded a visible rise in its loans to owner-operators, up 15.2 percent at end-June from end-December last year. “In the past, KEB has been heavily reliant on conglomerate loans,” said an official of the bank.
“But under recent circumstances, we decided to expand SME and owner-operator loans hoping to defend the interest margin level and also to diversify our loan business portfolio.”
The average net interest margin of domestic banks reached a record low of 1.58 percent in the second quarter, the Financial Supervisory Service said Tuesday. This reflected the rapid fall of the nation’s key policy rate, which nose-dived from 2.5 percent to the current 1.5 percent in less than a year.
As a result, banks turned their eyes to SME loans. The Bank of Korea data showed that the average interest rate of SME loans stood in the 3 percent range in April, lower than the 5 percent range last year but still higher than the rate for most private loans. But the fast rise of SME loans also caused concerns over financial soundness.
A report by the Korea Institute of Finance showed that companies in the lowest 25 percent bracket in assets held a debt-to-equity ratio of 384 percent, indicating their possible inability to pay back the loans. The burden for SMEs is likely to grow further as the key rate is speculated to rebound within the year, while the economy will continue to grow slowly.
