Weaknesses seen in flow of funds

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Weaknesses seen in flow of funds

The government’s finances are getting worse while companies are borrowing more, according to the latest national balance sheet.

Only households are doing better, with their financial positions in the best shape in three years as they have refrained from making property purchases due to tougher loan and real estate regulations.

According to the Bank of Korea’s money flow report, which was released on Wednesday, net lending in the first quarter totaled 13 trillion won ($11 billion), less than the 20.7 trillion won in the last quarter of 2018.

The money flow report is the country’s balance sheet and shows financial transactions of different economic participants.

The net lending is the amount that is left after subtracting the amount that has been borrowed from working capital, deposits, insurance and equity investments.

In the first three months of the year, the extra capital of household and nonprofit organizations was the largest in three years as the net lending amounted to 26.7 trillion won, more than double the 11.8 trillion won in the previous quarter. This is the largest since the first quarter of 2016, when it was at 28.8 trillion won.

However, the extra cash wasn’t the result of improvements in household income but rather people spending less.

Net borrowings nearly doubled in the first quarter.

The net borrowings of nonfinancial companies between January and March totaled 15.8 trillion won, more than the 7.5 trillion won in the previous quarter.

This is also the largest since the second quarter of 2017, when net borrowing amounted to 17.8 trillion won.

The central bank in its report said company net borrowing grew despite cutbacks in construction and facility investment as their profit growth in the first quarter slowed.

According to the central bank in the first quarter, the operating profit ratio of companies, which are required to be audited, has dropped 2.2 percentage points compared to the same period a year ago, to 5.3 percent. This means that on 1,000 won worth of sales, profit has fallen from 75 won to 53 won.

As the low interest rates continue and concerns over the economy slowing grow, companies were seen to have actively pursued the issuing of corporate bonds.

According to the Korea Securities Depository, in the first half of this year, 35.8 trillion won worth of corporate bonds were issued, which is a 55.7 percent increase compared to the second half of last year.

The government’s position is worsening as less in taxes is collected while spending to boosting the economy increases.

In the first quarter, the government’s net lending totaled 8.4 trillion won, a 600 billion won decline from the previous quarter. This is the biggest decline since the data was first compiled in 2009. Government net lending includes not only the additional cash that the central government has, but also that of regional and local governments and the social guarantee funds.

The government in the first quarter collected 78 trillion won in taxes, which is 800 billion won less than the same period a year earlier. Spending totaled 82 trillion won, more than the 76.7 trillion won spent in the first quarter of last year.

BY HA HYUN-OCK [lee.hojeong@joongang.co.kr]
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