Service Firms Bulk Larger In Bank Lending Portfolios

The proportion of bank loans taken out by service businesses soared in recent years, the central bank said Monday. The manufacturing sector, by contrast, has become a less important customer of bank lenders.

Loans extended to service businesses represented 36 percent of all bank loans outstanding at the end of last year, the Bank of Korea said, with nearly 74 trillion won ($55.7 billion) in borrowing. Restaurant and lodging businesses had 5.3 trillion won in loans outstanding, nearly four times the amount outstanding at the end of 1997. Loans by real estate development and rental firms rose 450 percent during the three years, to 2 trillion won, the bank said.

An official at a large commercial bank said, "Service businesses tend to have higher cash turnover and usually take out smaller loans. Collection of loans is also relatively easier than from manufacturing businesses."

In 1998, the government lifted the ban on bank borrowings by many service-oriented businesses, including gambling establishments, massage parlors, condominium developers and up-scale restaurants.

Borrowing by manufacturing companies represented 44 percent of total outstanding bank loans, down from 52 percent three years ago. A central bank official said, "A lot of manufacturing companies reduced bank loans as they underwent restructuring and lowered their debt ratios below the government's 200 percent target."

by Cheong Chul-gun