Streets of Seoul, South Korea (Photo by Markus Winkler via Unsplash)

Korean banks' household loans extend decline whilst corporate loans slow

Loans extended to local SMEs rose rapidly in February.

South Korean banks’ lending to the household sector continued to decline in February, affected by high interest rates and lending regulations, according to data released by the central bank.

Household loans, which include loans assigned to the Korea Housing Finance Corporation, are KRW2.7t lower in February than the previous month, according to the Bank of Korea (BOK). 

The value of decline was lower than in January, however, when the loans extended to households fell by KRW4.7t.

The implementation of the third stage of DSR regulations, along with high interest rates, affected lending demand, the BOK said.

Home mortgage lending decreased by KRW300t during the same period due to an accelerating decline in loans related to leasehold deposits. This more than offset increased demand for funds related to housing transactions and group loans, the report noted.

ALSO READ: South Korea reviews allowing insurers to conduct banking operations

Corporate loans slow
Bank lending to the corporate sector continued to grow in February, but at a slower pace.

Loans extended to corporates are KRW5.t higher during the month compared to January, according to BOK data. This is slightly slower than the KRW7.9t rise reported in January compared to December 2022 levels.

Bank lending to large corporations exhibited slower growth, rising only KRW900m, in February. BOK attributed this to the lack of “seasonal factors” and reduced loan demand in line with an expansion in corporate bond issuance.

In contrast, bank lending to small and medium enterprises (SMEs) ramped up, with KRW4.3t additional loan value extended in February compared to KRW1.3t rise in SME lending reported in January.

Net corporate bond issuance expanded by KRW4.3t in February. 

“[The rise] is under the influence largely of improved corporate bond issuance conditions in line with strong investor demand for corporate bonds,” BOK wrote in the report.

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