Non-bank loans account for almost 30%

The share of corporate loans taken from non-bank depository institutions (non-bank institutions) reached almost 30 percent, the highest figure since the Global Financial Crisis in 2009. Companies that find it difficult to borrow money from banks rely more on non-bank institutions, such as mutual savings banks, which have relatively higher interest rates.

In particular, such loans are especially prevalent in the real estate, wholesale and retail, and lodging and food industries, which are vulnerable to economic recession, exposing them to a higher risk of bankruptcy.

According to the data provided on Monday by the Federation of Korean Industries based on the analysis of the money flow charts of the Bank of Korea, loans from both deposit banks and non-bank institutions saw a significant increase since COVID-19. In particular, the increased rate of loans from non-bank institutions with higher interest rates is more than double that of their counterparts. Non-bank institutions are financial institutions that are not banks but handle deposits, such as mutual savings banks, credit cooperative associations, and the Korean Federation of Community Credit Cooperatives. As of September this year, the average interest rate from deposit banks was 4.7 percent, while that of mutual savings banks was 8.0 percent.

“As companies’ performance has become polarized since the second half of last year, most companies, except for large ones, find it difficult to take loans from the banking sector. In particular, they are also struggling to issue corporate bonds due to the soaring interest rate,” said the Federation of Korean Industries on increasing loans from non-bank institutions.

According to the Federation of Korean Industries, the amount of corporate loans from deposit banks rose 10.9 percent per year from late 2019 to the first half of this year, while that of non-bank institutions increased by 27.5 percent during the same period. The federation said that the share of corporate loans taken from non-bank depository institutions reached 29.7 percent, the highest figure since the Financial Crisis in 2009.

By industry, the level of loan concentration for the real estate, wholesale and retail, and lodging and food industry is 2.8, 2.1, and 2.0, respectively, as of the first half of this year, recording the highest numbers in comparison to their shares in GDP. The level of loan concentration refers to the rate of a particular industry’s share in loan amount in comparison to its share in GDP. “As these industries are directly affected by the hard landing of the real estate economy and the shrinking of domestic consumption, close attention should be paid to potential loan failure in these industries,” said Chu Kwang-ho, the director of the economy of the Federation of Korean Industries.


Do-Young Kwak now@donga.com