Conglomerates lead loan growth to record high in July

South Korea's large business groups led a sharp increase in bank lending in July, driving the corporate bank loan growth to a record high, central bank data showed.

The loan growth came at the expense of shrinking bond issuance. The volume of corporate bond redemption exceeded the debt issues for a second straight month despite the rising credit demand, according to the Bank of Korea’s monthly financial market trends released on Wednesday.

The balance of corporate bank loans surged by 12.2 trillion won ($9 billion) in July. It marked the largest monthly growth for bank lending to the corporate sector since the Bank of Korea began compiling the data in 2009.

Large business groups took up 42% of the new corporate bank loans last month, or 5.4 trillion won. That is a nine-fold jump, compared with the 600 billion won increase the month prior.

In total, the outstanding balance of corporate bank loans spiked to 1,137.4 trillion won at the end of last month.

For small and medium-sized enterprises, the balance of bank loans maintained a high growth rate thanks to the government-supported special loan programs for the pandemic-hit small business owners.

WIDER YIELD SPREAD, SHORT-TERM LOANS

Overall, corporate credit demand has picked up on the back of the weakening won against the dollar and soaring raw materials costs.

But South Korean companies redeemed a net 1.5 trillion won in corporate bonds last month, replacing them with lower-interest bank loans. That marked the third consecutive month for their net bond redemption.  

Behind their outflows from the corporate debt market was the widening spread in yields between corporate loans and government bonds.

The yield differential between three-year corporate bonds rated double-A minus and government bonds of the same maturity increased to 0.96 percentage points at the end of last month, according to Korea Financial Investment Association.  

The spread stood at 0.81 percentage points the month previous.

Some companies turned to short-term financing tools such as commercial paper (CPs) and loans from private lenders.

The balance of financing through CPs and short-term loans from private lenders swung to an increase of a net 1.2 trillion won in July.

Write to Mi-Hyun Jo at mwise@hankyung.com
Yeonhee Kim edited this article