Banks moving toward helping smaller companies with loans

Banks have taken action to help small- and medium-size businesses due to loan delinquency rates that are higher than in the 2008 global financial crisis. Major banks will cut interest rates or extend the loan period and raise the amount of loans.

Industrial Bank of Korea took the initiative, with CEO Cho Joon-hee saying, "We will lower loan interest rates for SMEs from next month," in a news conference early this month, adding, “I will lower the highest loan interest rate to SMEs, which exceeds 10 percent today, to a single digit over my remaining two-year term."

Korea Development Bank will also postpone the repayment deadline by one year. It extended loans worth approximately 4 trillion (3.46 billion U.S. dollars) for operations and facilities of some 3,000 smaller companies maturing between January and June next year.

Commercial banks and public financial institutions joined the initiative. Shinhan Bank will lower the loan interest rate for smaller companies with growth potential and long-term corporate customers by half to one percentage point next month.

Kookmin Bank will offer loans for such companies with lower interest rates than existing loans in February next year. Nonghyup Bank plans to decrease loan rates and increase loan volume from 2 trillion won (1.73 billion dollars) this year to 3.2 trillion won (2.77 billion dollars) next year.

Korea Credit Guarantee Fund will increase the guarantee for smaller companies from this year`s 38.8 trillion won (33.5 billion dollars) to up to 40 trillion won (34.6 billion dollars) next year. A larger guarantee by the fund encourages banks to increase loans to smaller companies.

This was due to the steep increase in the loan delinquency rates of smaller companies, which almost threatened the asset quality of banks. As of late October this year, their loan delinquency rate was 1.83 percent, up from 0.27 percent a month ago and higher than 1.7 percent, the rate in the global financial crisis at the end of 2008.

Consensus was reached that lowering loan interest rates for the companies was essential for the banks` survival.

Banks are being lauded for taking steps, but are under fire for taking belated action since the crisis began a while ago as the fiscal crisis in developed economies occurred in early August. Many banks have extended loans to smaller companies in good times but recalled them in bad times, which often led to profitable small companies going bankrupt.

If banks, which have drawn criticism for high pay for staff and fees, do not take away their financial umbrella when it rains, people will see them more favorably.