Korean banks wary of increasing loans to smaller firms

SEOUL, Aug. 20 (Yonhap) -- South Korean banks remain reluctant to expand loans to
smaller firms despite the government's call to do so, with many scurrying to
increase home-backed loans as they look to find revenue sources, data showed
Thursday.

Amid a protracted economic slump, the government has urged local banks to provide
much-needed liquidity to cash-strapped small and medium enterprises (SMEs) as it
is seen as necessary for reviving the local economy.
Loans to smaller firms extended by 18 local banks increased by a mere 220 billion
won (US$176 million) on-month to 438.8 trillion won in July, according to
industry sources.
Lending to SMEs had increased by a monthly average 2 to 3 trillion won between
January and May, but it rose by 1.1 trillion won in June, they said.
Meanwhile, home-backed loans maintained an upward trend as banks are making
efforts to avoid high risks stemming from loans to SMEs by increasing mortgage
loans, stoking worries about a possible asset bubble.
As of the end of July, outstanding bank mortgage loans amounted to 257.8 trillion
won, up 3.4 trillion won from a month earlier, the Bank of Korea (BOK) said.
Local banks' home-backed loans expanded by 3.5 trillion won in June, the fastest
growth in more than two years, as all-time record low borrowing costs raised
demand amid rising housing prices.
Korean banks say they are caught between being pressured to expand lending to
smaller companies while also trying to beef up their financial soundness by
lowering bad loan ratios. But experts say that given the government is providing
credit guarantees for such loans, lenders appear to be shunning their roles as
intermediaries in the financial markets by making credit flow smoothly.
"Highly profitable or financially sound companies could raise funds through share
or bond issuances, but smaller firms cannot help resorting to bank loans," said
Lee Byung-yoon, a senior economist at the Korea Institute of Finance. "If banks
are wary of increasing lending to SMEs, there is the need for the government to
step in to provide funds for promising companies."
sooyeon@yna.co.kr
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