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Banks (Finance)

Local Banks Provide 3.1 Trillion Won in Loans to Smaller Companies Amid Slumping Economy

Strategic Insights

— 1 min read

As the South Korean economy struggles, local banks have stepped in to provide financial support to smaller companies, extending 428.5 trillion won in outstanding loans to these firms in February. Despite initial concerns about increasing bad debt, banks have been encouraged to roll out more loans by a 20 trillion won bank recapitalization fund. The move aims to boost the capital base of lenders, injecting an initial 12 trillion won into local banks in March. This support comes as the Financial Services Commission, the nation's financial watchdog, plans to inject 12 trillion won into local banks in March as part of a 20 trillion won bank recapitalization fund.

Key Takeaways:

  • Local banks extended 3.1 trillion won in loans to smaller companies in February, with outstanding loans reaching 428.5 trillion won.
  • Loans to small and medium enterprises (SMEs) gained three trillion won in January after declining 1.8 trillion won in December.
  • The delinquency rate of bank loans to SMEs stood at 2.36 per cent in January, up from 1.7 per cent in December and the highest level since August 2005 (2.44 per cent).
  • The Financial Services Commission plans to inject 12 trillion won into local banks in March as part of a 20 trillion won bank recapitalization fund.
  • The move aims to encourage lenders to extend more loans by boosting their capital base.
  • Local banks have agreed to roll over all loans maturing this year except those extended to bankrupt companies.
  • Two state guarantee agencies began to expand credit guarantees for smaller firms last month.

Statistics:

  • 3.1 trillion won: The amount of loans provided by local banks to smaller companies in February.
  • 428.5 trillion won: Outstanding loans extended by a total of 18 local lenders to smaller companies in February.
  • 2 trillion won: The initial amount injected into local banks in March as part of the 20 trillion won bank recapitalization fund.
  • 12 trillion won: The amount of initial funding from the bank recapitalization fund to be injected into local banks in March.
  • 20 trillion won: The total bank recapitalization fund to be used to buy subordinated bonds and hybrid debt from lenders.
  • 2.36 per cent: The delinquency rate of bank loans to SMEs in January, up from 1.7 per cent in December.
  • 1.7 per cent: The delinquency rate of bank loans to SMEs in December.

Sources:

  • Yonhap, (date unavailable)
  • Asia Pulse, March 9, (date unavailable)

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