Corporations borrow a record amount from banks in April

Small business owners apply for loans at the Small Enterprise and Market Service's branch in Seoul in April. [YONHAP]

Corporations are relying heavily on bank loans to stay afloat during the coronavirus pandemic, according to data released by the central bank Tuesday. Their debt financing was largely backed by a slew of supportive measures released by the government and lenders over the past two months to avert a possible credit crunch.

The Bank of Korea said corporate loans from banks in April increased by 27.9 trillion won ($23 billion) compared to the previous month, the largest monthly increase since the bank started compiling related data in 2009. The previous record was in March, when new corporate loans hit 18.7 trillion won.

Corporate loans outstanding totaled 929.2 trillion won as of the end of April.

Conglomerates, small- and mid-sized enterprises (SMEs) and individual businesses borrowed heavily.

Conglomerate borrowings increased by 11.2 trillion won in April compared to March, while those by SMEs surged by 16.6 trillion won and individual businesses by 10.8 trillion won. The bank explained that small businesses were short of operating funds in April and that low interest rate policies for loans to small businesses and SMEs accelerated their debt financing.

Loans to SMEs increased nearly threefold in April compared to the previous month’s 8 trillion won as a contraction in consumption in March started to hit revenue in April.

“Extending debt maturity to virus-hit businesses and rescheduling principal payments helped companies borrow more,” the bank said.

The increase in household debt slowed in April compared to the previous month mainly due to a slowdown in stock investment as the local stock process started to stabilize.

Household debt increased by 4.9 trillion won in April, down from the previous month’s 9.6 trillion won. Mortgage loan totals expanded by 4.9 trillion won over the cited period, compared to the 6.3 trillion won expansion in March and the 7.8 trillion won increase in February.

Home purchases and jeonse, where tenants provide a lump-sum deposit to the homeowner for a long-term lease, dropped in March. While an average of more than 10,000 houses were traded last year per month, the figure dropped below 4,000 units in March.

Other loans, which include credit loans and stock-backed debt among others, dropped by 100 billion won in April compared to the month before. In March, these loans increased by 6.3 trillion won, largely due to frenetic buying of local shares.

"The impact of Covid-19 held back household consumption, dragging down demand for credit which before was in much need when they needed to pay off their credit cards.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]