Total loans extended by South Korea’s non-banking institutions to companies have sharply risen in the third quarter as commercial banks turned reluctant to lend on growing concerns over bad debts amid ongoing restructuring across the country.

According to data released by the Bank of Korea on Monday, the country’s corporate loan balance stood at 986.4 trillion won ($841.4 billion) as of the end of September, up 1.6 percent, or 15.7 trillion won, from the end of June. Corporate or industrial loans are borrowings given out by depository institutions - banks and non-banks such as savings banks, mutual savings banks, credit cooperative associations, and mutual finance institutions - to companies.

The rise in corporate loans in the third quarter ended September was up 4.1 trillion won from a 11.6 trillion won gain in the second quarter, but down 4.3 trillion won from a year-ago addition of 20 trillion won, reflecting a slowing economy said Choi Young-yeop, deputy director of BOK’s economic statistics bureau.

By institution, loans extended by non-bank institutions surged. As of the end of September, their corporate loan balance stood at 176.1 trillion won, up 3.4 percent, or 5.8 trillion won, from the end of June. The growth accelerated from a 3.7 trillion won gain a year ago and a 3.3 trillion won addition a quarter earlier.

Such a steep increase in corporate loans from the non-banking sector came after commercial banks have recently tightened their credit-lending standards amid ongoing business restructuring across industries. Local businesses owed 810.3 trillion won in total to commercial banks as of the end of September - 1.2 percent, or 10 trillion won, more compared with the end of June. But this is 6.4 trillion won less than a gain of 16.4 trillion won a year ago.

Choi from the BOK said local commercial banks have started to apply stricter loan qualification standards on not only large corporates but also small and medium businesses, sparking concerns over increasing interest burden.

According to BOK, the annual corporate borrowing rate of savings banks in October was 7.45 percent, more than double than 3.34 percent offered by commercial banks.

By sector, the amount of corporate loans given out to companies in the manufacturing industry came at 333.6 trillion won as of the end of September, up 1 percent, or 3.2 trillion won, from the end of June. The on-quarter growth in loans in the third quarter was more noticeable than in the second quarter when the amount of loans increased 1.2 trillion won from the previous three months. The rise in loan amount, however, was less than half of a 6.7 trillion won addition in the third quarter of last year.

Companies in the service sector borrowed total 556.4 trillion won as of end of September, up 2.1 percent, or 11.4 trillion won, from three months earlier. Within the service sector, the balance of combined loans given out to the country’s real estate industry stood at 165.4 trillion won, up 3.3 percent, or 5.2 trillion won, on year. It also represents 33.1 percent of total corporate loan increase. The sharp rise in corporate loans in the real estate sector came after a boom in old apartment building reconstruction projects in southern Seoul this summer that has helped animate the overall real estate market in Seoul and surrounding areas.

By Boo Jang-won

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]