South Korea is showing signs of a mismatch between credit supply and demand among corporate borrowers as demand for loans from Korean small and mid-sized businesses rise. However, commercial lenders are increasingly directing funds toward larger-sized borrowers.

The country’s five major lenders - KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and Nonghyup Bank Co. - expanded their corporate loan books by nearly 3.4 trillion won ($2.38 billion) to 829 trillion won in April 2025 as of Tuesday, according to industry data. This is a shift from March, when corporate loans decreased by 2.4938 trillion won compared to the previous month. A commercial bank official said, “The beginning of the year, and the second quarter in particular, is usually the peak season for corporate loans,” adding, “Corporate loans could not be increased in the first quarter of 2025 due to CET1 ratio management but the situation will improve somewhat in the second quarter.”

However, 88 percent of the new lending, or around 2.95 trillion won, went to large enterprises. Lending to small and mid-sized enterprises (SMEs) and self-employed borrowers rose by only 390.7 billion won, although they account for a significantly larger share of outstanding corporate loans compared to larger-sized borrowers. The outstanding corporate loans granted to SMEs and self-employed borrowers totaled 663.6 trillion won compared to 164 trillion won to large firms.

This was also confirmed by bank statistics. According to a survey released by the Bank of Korea on April 22nd, the demand for loans from banks in the second quarter increased significantly for small and medium-sized enterprises than for large corporations. In contrast, the lending attitude, which shows how actively financial institutions are lending, was found to be more picky towards small and medium-sized enterprises than large corporations.

Analysts say banks are prioritizing low-risk corporate clients to protect their Common Equity Tier 1 (CET1) ratios, a key gauge of financial health that reflects a bank’s ability to withstand losses. Loans to small-sized firms and self-employed borrowers are considered riskier and require more capital reserves under regulatory guidelines.

The increase in corporate loans in the second quarter was largely due to the increase in the CET1 ratio in the first quarter of 2025. Looking at the CET1 ratios of the four major financial holding companies at the end of 2024, KB Financial Group’s was 13.53%, Shinhan Financial Group’s was 13.06%, Hana Financial Group’s was 13.22%, and Woori Financial Group’s was 12.13%, and these ratios are expected to rise across the board as of the end of the first quarter of 2025. Daishin Securities forecasted that KB Financial Group’s ration would rise to 13.66%, Shinhan Financial Group’s to 13.10%, Hana Financial Group’s to 13.15%, and Woori Financial Group’s to 12.30% by the end of the first quarter. However, the CET1 ratio could fluctuate again at any time due to the uncertain outlook and this is why there are concerns that if the corporate loans that have been expanding since April are tightened again, it could become more difficult for SMEs and self-employed people to secure funds.

Korean financial authorities will require major banks to keep CET1 ratios at 11.5 percent or higher starting the second half of 2025, up from the current 9 percent. The new requirement will likely put further pressure on banks to manage their capital buffers in a more conservative approach.

The financial sector also pointed out that a flexible approach to the CET1 ratio is required amid increasing economic uncertainty, adding that that if difficulties for SMEs and self-employed people increase, it could trigger a vicious cycle that will increase the burden on financial institutions.

“Focusing solely on CET1-related risks can turn banks into institutions that merely lend against collateral, rather than fulfilling their broader role in supporting the economy,” a senior official from a financial institution who requested anonymity said.

“Banks need a more flexible approach to capital rules, particularly as economic uncertainty rises and worsening conditions for smaller businesses,” the source added.

[ⓒ 매일경제 & mk.co.kr, 무단 전재, 재배포 및 AI학습 이용 금지]