Commercial banks in South Korea have stepped up efforts to enhance loan management of upscale restaurants and golf courses to minimize possible default risk ahead the country’s upcoming anti-corruption law to be enforced next month with tough limits on accepting expensive gifts and meals.

According to multiple sources from the financial industry on Tuesday, the country’s leading commercial banks including KEB Hana and KB Kookmin have recently launched their own inspection to look into loan conditions of high-end restaurants that have been highly sought as meeting places by government officials and business people as they generally provide private rooms or divide tables with partitions to allow more private meetings.

The check-up comes after the Constitutional Court of Korea late last month ruled in favor of the Improper Solicitation and Graft Act in which the initial draft was proposed by Kim Young-ran, former head of the Anti-Corruption & Civil Rights Commission, with an aim to end soliciting public officials with generous hospitality. In Korea, giving expensive meals and gifts to public officials has been as normal business practices, but has been blamed for wide-spread corruption in the private business and public services.

An unnamed bank official said those banks embarked on the inspection on restaurants after some upscale restaurants in business-clustered areas like Gwanghwamun, central Seoul, have shifted industries or businesses due to fears for a possible drop in the number of customers visiting expensive restaurants after the enforcement of the anti-graft law on September 28. The official noted that it is important for banks that have provided loans to high-end restaurants to constantly check their business conditions as part of risk management efforts.

Many upscale restaurants are located not only in Gwanghwamun, but also in Gangnam, southern Seoul, and Yeouido, western Seoul, where many private and public offices, as well as government complex are based. Local banks are known to be providing loans worth between 100 million won ($91,100) and 200 million won to these restaurants.

Loans to self-employed or so-called “small office home office (SOHO)” businesses including restaurants and retailers by the country’s four major commercial banks Shinhan, KB Kookmin, Woori, and KEB Hana, have increased 34.5 percent from 109.9 trillion won in the end of 2013 to 147.8 trillion won in the end of June this year. Banks have been expanding their loans to SOHO businesses as each of the loan amount is less than 200 million won, posing less risk than loans provided to large companies.

Concerns over their business would worsen from the tough anti-graft law would on top of protracted economic slowdown, making their loans to go sour.

Another bank official who asked to be unnamed said that following the latest inspection, vulnerable businesses with poor sales would have their maximum loan amount reduced.

Local banks are also keeping an eye on the golf course business. Following a steady drop in the number of golf course visitors in recent years, some commercial banks have already lowered their exposure to the business. Banks are now worried that the upcoming anti-corruption law would worsen the current business environment of golf courses where business people often invite public officials to play golf together over the weekends as a normal part of business practices.

By Kim Hyo-sung and Noh Seung-hwan

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