Mom-and-pop lending on the rise with banks

Small merchants at traditional outdoor markets in Korea have never been favorite loan customers for Korean banks.
Their sometimes dodgy credit history, unstable income and lack of tangible collateral have long been a turnoff for local banks. Meanwhile, big enterprises are often showered with easily-approved big loans. But things are changing.
Korean banks have been feeding their growth with home mortgage loans, the biggest component of their loan sales. But the government, in its effort to cool property price hikes, has ratcheted up restrictions on home loans, because home lending was considered a major driver in escalating real estate prices.
Now the banks, squeezed by tougher regulations, are turning to a once-unthinkable clientele ― mom-and-pop store owners and small ragtag merchants at outdoor markets.
Hana Bank, Korea’s fourth-largest bank, yesterday introduced a new loan specifically targeting 1,400 wholesale brokers at Garak farming product market in Seoul.
Garak market is the nation’s best-known traditional wholesale market for fruit and other farm products. About 130,000 retailers visit each day.
According to Hana’s new loan product, a broker at the market can take out loans worth up to 50 million won ($54,182) without collateral, with an annual interest rate of 6.5 to 9 percent, depending on credit history.
“The merchants in the outdoor markets have long been a marginalized group in bank lending,” said Oh Seong-seob, chief manager of Hana Bank’s Small Office and Home Office marketing team.
“But our research showed the brokers in Garak market have a relatively stable income, and few of them have been forced out of their jobs, meaning their job prospects are stable. So lending to them did not seem as risky as we once thought.”
Since last May Hana has been rolling out loans targeting merchants in commercial districts, including Dongdaemun fashion district and flower vendors in Banpo bus terminal in southern Seoul.
“We have loaned five to 10 billion won in each of the districts,” said Oh.
Korea’s No. 2 lender, Woori Bank, also opened a new marketing team. Woori’s new chief, Park Hae-choon, wants to beef up lending to small business owners and credit card operations.
So far in 2007, lending to mom-and-pop merchants has increased while home mortgage lending has shrunk.
Combined lending to small business owners and individual merchants by the top four banks (Kookmin, Woori, Shinhan and Hana) was 61.3 trillion won as of late April, up 4 percent from 58.9 trillion won in late December of last year.
Home loans are down 0.4 percent in the same period.

By Jung Ha-won Staff Writer [hawon@joongang.co.kr]