Foreign Banks Increased Loans to Individuals

Branches of foreign banks operating in Korea expanded their loans to individuals whereas domestic banks abstained from lending to individuals. Experts in the financial sector indicated that domestic banks were denying lending to individuals, even those with high credibility, so they were forced to borrow money at high interest rates from foreign banks.
According to the Bank of Korea's data for the National Assembly's audit inspection, released on October 19, the total sum of foreign bank loans to individuals increased by 75% from 511.8 billion won to 896.2 billion won. The sum of domestic bank loans to individuals decreased by 2.4 trillion won to 43.28 trillion won.
Foreign banks loans rose, at most, by 30 billion won per month before the IMF bailout but grew by 100 billion won from December 1997 to February 1998. At the moment, domestic banks have not only stopped all new loans but are concentrating on reducing their existing loan numbers. Won Hyo Sung, executive of Citi Bank said, 'Domestic banks do not even lend to individuals with high credibility since the foreign exchanges crisis, so the financial demand flowed into foreign banks.'