Korean Corporate Loans Jump 9.7 Trillion Won
Bank lending to Korean businesses accelerated in August, but the funds largely bypassed small firms and physical investment.
Bank corporate loans in South Korea increased by 9.7 trillion won in August. This marks a sharp acceleration from the 7.7 trillion won rise recorded in July. The total corporate loan balance reached 1,430.8 trillion won at the end of the month. This shift aligns with government policies to redirect credit from households to productive sectors.
The growth was driven primarily by large corporations. Loan balances for big firms rose by 4.9 trillion won, surpassing the 4.8 trillion won increase for small and medium-sized enterprises. This trend is evident in the five major banks, where large corporate loans accounted for 59.5% of the monthly increase. The data indicates that credit is concentrating in high-rated entities rather than spreading across the broader economy.
Credit Flows Favor Large Firms
Banks prioritize large corporations due to lower risk and higher transaction volumes. These firms have transparent financial data and strong repayment capabilities. The semiconductor sector is a key driver, with massive capital needs for new production lines and AI infrastructure. The Korea Development Institute raised its forecast for facility investment growth to 7.9% for the year. This is a significant upward revision from the 3.3% estimate made in May.
However, the benefits are narrowly focused. The operating profit margin for 26,509 audited companies hit a record 16.9% in the second quarter. This figure drops to 6.2% when Samsung Electronics and SK Hynix are excluded. Investment and performance gains remain concentrated in the semiconductor industry. Credit allocation continues to favor firms with proven profitability, leaving other sectors with limited access to capital.
Working Capital Dominates Loan Usage
Most new loans are used for operational needs rather than long-term assets. In the second quarter, industrial loans increased by 30.6 trillion won. Of this amount, 23.8 trillion won went to working capital. This category covers raw material purchases, wages, and short-term debt repayment. Facility funds for factory construction or machinery increased by only 6.9 trillion won.
The gap between working capital and facility investment highlights a structural issue. Funds are being used to maintain current operations and service existing debt. This pattern suggests that credit is not yet driving a broad expansion of productive capacity. The shift toward productive finance remains incomplete, with significant portions of new lending serving to stabilize balance sheets rather than fund new production.
SME Distress Continues to Rise
Non-performing loans for small and medium-sized enterprises are increasing rapidly. This trend contrasts with the stability seen in large corporate portfolios. The concentration of credit in large firms does not mitigate the financial stress faced by smaller businesses. According to GN auto markets/bonds: corporate bonds, the underlying credit quality for SMEs is deteriorating despite the overall expansion in corporate lending. The divergence between large and small firm credit conditions remains a key risk factor for the financial system.
