Home Business “Take and lose” Commercial banks, household loan Joyny corporate loan competition ‘lively’

“Take and lose” Commercial banks, household loan Joyny corporate loan competition ‘lively’

by news dir

As the financial authorities have taken a strong approach to managing the total amount of household loans, financial institutions, which have been put in a brake on their fund management, are eager to serve corporate customers. This year, the growth rate of corporate loans by banks is more than 7%. Two financial institutions, such as savings banks, are no exception. Small and medium-sized enterprises (SMEs) loans handled by savings banks in the first half of this year approached 50 trillion won. The problem is that corporate loans from the financial sector are concentrated on loans to small and medium-sized enterprises that are vulnerable to the damage caused by the novel coronavirus infection (COVID-19). There are also concerns that the government’s COVID-19 financial support measures could become insolvent if the financial aid measures are terminated. We looked at the status of corporate loans in the financial sector.

In response to the financial authorities’ intense pressure to regulate household debt, banks are turning to expanding corporate loans instead of tightening household loans. However, there are concerns that a surge in corporate loans may increase the risk of insolvency in the future in a situation where the economy has not fully recovered due to the prolonged Corona 19. / Graphic = Reporter Kim Young-chan

Jeon, 40, who runs a clothing retail business in Jungnang-gu, Seoul, was using a 280 million won loan from Kookmin Bank for policy funds from the Korea Credit Guarantee Fund. In the meantime, as the new coronavirus infection (COVID-19), which has spread since last year, has made it difficult to operate the business, Jeon needed additional funds. It was difficult for Jeon to get additional loans with the policy funds he had already received. After consulting with the corporate finance staff of Kookmin Bank, Jeon was able to receive an additional 100 million won loan by issuing an additional guarantee from the Korea Credit Guarantee Foundation. In addition, Jeon received a proposal from an employee to give him a preferential interest rate of 0.1 percentage point.

In response to the financial authorities’ intense pressure to regulate household debt, banks are turning to expanding corporate loans instead of tightening household loans. As it becomes difficult to handle new household loans, which account for more than half of loan assets, banks are planning to secure interest income through corporate loans. In addition, the financial authorities are ordering banks to maintain the proportion of corporate loans by more than half by next year.

Photo = Image Today

Photo = Image Today

Medium-term loans increased by 3.5 times compared to the growth rate of large corporations

At the end of September, the balance of corporate loans by domestic banks stood at 1049 trillion won, up 7.7 trillion won from the end of the previous month. This year, the growth rate of banks’ corporate loans was 7.43%, exceeding that of household loans (6.46%). The trend of a steeper increase in corporate loans than household loans was more pronounced at the top five banks. The balance of corporate loans of the five major banks, KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, stood at 621.7 trillion won at the end of September, up 8.01% from the end of last year. During the same period, the balance of household loans stood at 702,887.8 billion won, an increase of only 4.88 percent.

The increase in banks’ corporate loans was led by SME loans. Looking at the growth rate of corporate loans by domestic banks as of the end of September, mid-term loans reached 8.50%, while large corporations only recorded 2.44%. The increase in loans to small and medium-sized enterprises (SMEs) is about 3.5 times that of large enterprises.

Among the five major banks, Shinhan Bank had the highest proportion of corporate loans among all loans. At the end of September, Shinhan Bank’s corporate loan ratio stood at 49.26%, up 1.63 percentage points from the end of last year. It was followed by Hana Bank with 47.21 percent and Kookmin Bank with 45.55 percent, up 0.72 percentage points and 0.35 percentage points, respectively. Woori Bank rose 1.58 percentage points to 46.46 percent, while Nonghyup Bank dropped 0.44 percentage points to 43.91 percent.

The introduction of Basel 3 had a major impact on banks’ significantly increasing corporate lending. In order to overcome Corona 19, the financial authorities ordered that the proportion of corporate loans be maintained at more than half until next year, on condition of early introduction of ‘Basel 3′ last year, which is a regulatory measure for banks’ capital soundness that will be applied from 2023. The key to Basel 3 is to lower the risk weight for loans to SMEs without a credit rating from 100% to 85%. Banks are also targeting high-quality small and medium-sized enterprises (SMEs) rather than large enterprises whose main bank is already established.

Photo = Money S DB

Photo = Money S DB

How do banks increase corporate loans?

Banks are strengthening collaboration with business operators to expand corporate lending. Shinhan Bank acquired 1.97% (72.3 billion won) of treasury stock from Duzon Bizon in September. It is a strategy to expand mid-to-low interest rate loans to small and medium-sized enterprises by linking financial and non-financial data of the two companies using real-time corporate accounting and commerce data owned by Duzon Bizon.

Since September, Kookmin Bank has partnered with Woowa Brothers, who run ‘Baedal Minjok’, to provide a preferential interest rate of 0.3 percentage points and a loan limit to the self-employed. In September, Hana Bank and the Korea Importers Association began to provide financial support to importing companies.

Some banks are speeding up the non-face-to-face business lending. Woori Bank introduced ‘Woori Oh! Click Loan’, a non-face-to-face loan for individual business owners in March, and ‘Woori Bank Naver Smart Store Loan’ in partnership with Naver Financial in July. Nonghyup Bank has reorganized ‘NH Enterprise Smart Banking’, which is specialized for SMEs and small business owners, by providing free nationwide commercial area analysis data.

There is also a battle between banks to attract corporate customers. In particular, commercial banks are pursuing a strategy of attracting customers by offering better conditions than government-owned banks when the loan maturity approaches for small and medium-sized enterprises (SMEs) that use government-owned banks with relatively good loan conditions as their main banks. An official from a commercial bank said, “State-run banks that receive government funding have an absolute advantage over commercial banks in terms of loan interest and limit, and thus the proportion of major banks of small and medium-sized enterprises among individual banks is absolutely high.” It is relatively easy to attract customers as it is common to reduce the limit or raise the interest rate when doing so,” he said.

For this reason, the proportion of commercial banks among the main banks of SMEs is steadily increasing. According to the IBK Economic Research Institute, the proportion of main bank types of SMEs until 2015 was 46.5% for commercial banks, 35.4% for special banks, and 15% for regional banks.

Corporate loan concentration, concerns about insolvency

The financial authorities are recommending that Kookmin, Shinhan, and Woori Banks keep the proportion of corporate loans out of total new loans at 57% and Nonghyup Bank at 51%. However, there are concerns that a surge in corporate loans could increase the risk of insolvency in the future in a situation where the economy has not fully recovered due to the prolonged COVID-19. Loans from small and medium-sized enterprises (SMEs), including the self-employed, have increased significantly more than stable loans to large corporations. Until September this year, while loans to large corporations from banks increased by 4.2 trillion won, loans to individual businesses soared by 30.6 trillion won.

Koo Bon-seong, a senior research fellow at the Korea Institute of Finance, said, “Banks are attracting corporate loans due to restrictions on household loans, but unlike mortgage loans with collateral, corporate loans carry a greater risk. It is necessary to selectively expand loans from blue-chip companies because it is necessary to look at the situation, company performance, and future prospects,” he advised.

Two financial institutions, such as savings banks and insurance companies, are also looking for a way out of corporate loans. It is also active in strengthening the dedicated organization or transfusion of external talent. However, some point out that soundness management is necessary as concerns over the prolonged COVID-19 crisis and the ability of vulnerable companies to repay.

Growing corporate loans… From strengthening the command tower to recruiting talented people

According to the Financial Statistical Information System of the Financial Supervisory Service, in the first half of this year, the loan balance of savings banks totaled 88 trillion won, with 48.9 trillion won of corporate loans and 36 trillion won of household loans. Compared to the end of last year, corporate loans increased by 5.7 trillion won (13.1%) and household loans by 4.4 trillion won (14%). In the first half of this year, the total loan balance held by insurance companies stood at 260.3 trillion won, accounting for 126.6 trillion won in household loans and 133.5 trillion won in corporate loans. Compared to the end of last year, they increased by 3.5 trillion won (2.9%) and 3.8 trillion won (3%), respectively.

As the scale of corporate loans increases, the organization in charge is also taking shape. Since the beginning of this year, SBI Savings Bank has divided the corporate finance division into divisions 1 and 2, with 3 teams under division 1 and 2 teams under division 2, operating a total of 5 teams. started to strengthen its capabilities. In 2019, Vice President Baek Deuk-gyun, who was in charge of loan review at Woori Investment & Securities and Meritz Securities, was appointed as the head of the corporate finance division to strengthen the control tower.

Sangin Savings Bank appointed Sohn In-ho, former managing director of Woori Financial Capital, as the new head of the investment finance division last month. Director Sohn is evaluated as a corporate finance expert with 25 years of experience in savings banks and capitals. In addition, OK Savings Bank and Korea Investment and Savings Bank hired experienced employees to take charge of corporate finance last month.

Some of them seek sustainability such as ESG (environmental, social, and governance) with corporate loans. Pepper Savings Bank, for example, is strengthening ‘Pepper Green Financing’ for corporate customers with green energy and low-carbon economy as its main business model. also discussed

Savings Bank’s medium-term loan approaching 50 trillion won

The reason they are paying attention to corporate loans is because the demand for corporate loans has increased due to the economic deterioration caused by the prolonged COVID-19. In addition, as the financial authorities instructed savings banks and insurance companies to keep the annual household loan growth rate within 21.1% and 4.1%, it is interpreted that the business strategy was shifted from household loans to corporate loans to control loan speed and protect interest income.

An official from a large savings bank said, “The recent strengthening of loan management by financial authorities has put downward pressure on household loan profitability. Savings banks that exceed the limit are turning to corporate loans to control loan speed.”

Most of the loans they gave out went to small and medium-sized enterprises (SMEs). According to the Financial Statistical Information System of the Financial Supervisory Service, as of the first half of this year, loans to SMEs handled by 79 savings banks nationwide amounted to 46.609.4 trillion won, accounting for more than 95% of all corporate loans. Insurance companies also gave 86.4 trillion won to SMEs in the first half of this year, up 13% and 4.9% from 76.1 trillion won in the first half of last year and 82.4 trillion won at the end of last year, respectively.

Loan demand is growing… “Needs soundness management”

2 The demand for corporate loans from the financial sector is expected to continue to grow. The Bank of Korea announced in this month’s ‘Financial Institutions Loan Behavior Survey Results’ report that “in the fourth quarter of this year, loan demand for non-bank financial institutions (savings banks, insurance companies, etc.) I see,” he predicted.

The problem is that corporate loans centered on SMEs can increase the risk of insolvency of savings banks and insurance companies. There is also concern that the second financial sector has many borrowers with relatively low credit ratings compared to commercial banks.

According to the Bank of Korea’s ‘Financial Stability Report’, the proportion of companies with weak ability to pay interest (interest coverage ratio less than 1) because their interest expense is higher than their operating profit increased from 35.1% in 2019 to 39.7% last year. Among them, SMEs accounted for half, or 50.9%. In fact, one in two small and medium-sized enterprises (SMEs) cannot cover interest with operating profit.

Some warned that the risk of corporate loans is greater than that of household loans. This is because it is necessary to check the repayment ability of vulnerable companies as the proportion of loans from companies lacking the ability to pay interest increases. Of course, as of the first half of this year, the delinquency rate on corporate loans of savings banks was 2.6%, down 1.5 percentage points and 0.8 percentage points from a year ago (4.1%) and at the end of last year (3.4%). is a voice that calls for

In addition, the Bank of Korea predicted that the credit risk of borrowers by non-bank financial institutions such as savings banks and insurance companies will increase in the future. The savings bank predicted that the credit risk index would increase by 9 points from 13 in the third quarter of this year to 22 in the fourth quarter of this year.

“The delinquency rate increase for corporate loans with a high proportion of vulnerable companies may be greater than for household loans with a high proportion of high credit users,” said Cho Young-hyun, an insurance researcher at Korea Insurance Research Institute. We need to carefully check our capabilities,” he said.

Kim Young-do, a senior research fellow at the Korea Institute of Finance, diagnosed that “in the end, risk management is the key.” He said, “Saving banks and others are changing their strategies, such as turning their eyes to corporate loans when household loans are blocked, but it will not be feasible. Financial institutions need to manage the soundness,” he said.

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