Household loans viewed as cash cow

Foreign banks operating in Korea are zeroing in on high-return household lending, data showed yesterday, raising concerns that they may be reluctant to extend loans to companies in a bid to maximize profits while steering clear of risk.

Corporate loans by Standard Chartered Bank Korea reached 8.9 trillion won ($7.9 billion) as of the end of September, while the comparable figure for household loans came to 26.9 trillion won, nearly three times its corporate lending, according to the data.

Citibank Korea’s home loans amounted to 14.3 trillion won, outweighing its total corporate loans of 9.6 trillion won.

The data contrasts with the lending trend of domestic banks. As of the end of September, local lenders’ corporate loans came to 582.6 trillion won, or 55 percent of total loans, while home loans accounted for 445.1 trillion won, or 42 percent of the total.

Meanwhile, data released by state auditors showed that the interest margin, or the gap between lending and borrowing rates, stood at 4.07 percent for Citibank, much higher than the overall average of 2.97 percent.

Market watchers raised concern that lackluster corporate lending may worsen local firms’ borrowing circumstances amid ongoing external uncertainties, and urged foreign banks to step up their public roles in Korea.

However, some said it is unfair to criticize foreign banks’ lending practices.

“They should be regulated to control unlawful actions, but criticizing their lending practices, which are part of their corporate strategy, is an outdated approach in a free market,” said one industry official.

Foreign lenders acknowledged the high proportion of household loans, but said they support the corporate sector through other services.

“The lending ratio is partly due to structural reasons. Meanwhile, efforts are under way to help local companies go overseas on the back of our global network and knowhow,” said an official from Standard Chartered.

Yonhap