Banks play it safe, reserve loans for big businesses

Korean banks’ lending has been increasingly lopsided in favor of large companies, data showed yesterday, spawning concerns that small businesses will feel the pinch amid the economic slowdown.

Outstanding bank loans to smaller companies are estimated to have reached 462.9 trillion won ($411.8 billion) as of end-November, up 3.2 percent from the previous year, according to data by the central bank.

But their lending to large companies is projected to have reached 125.4 trillion won as of the end of November, up 26.6 percent from a year earlier, showing that banks are increasingly favoring extending loans to large businesses.

The data came as the Korean economy grew 0.4 percent on-quarter in the fourth quarter, the slowest expansion in two years, as exports lost steam amid sluggish domestic demand.

At the height of the 2008 global financial crisis, local banks were highly wary of extending loans to smaller firms due to credit risks.

The index gauging funding conditions facing local smaller firms stood at 82 for January, the lowest level since an identical 82 tallied in May 2009, according to a separate report by the Bank of Korea. A reading below 100 means that the number of pessimists outpaces that of optimists.

But the index measuring large firms’ funding situations rose to 94 for January, from 92 in December last year, it said.

SMEs are expected to face difficulty in raising funds in the first quarter as banks curb lending. Yonhap