The government eased lending rules for companies outside the capital region to revive regional finance, but banks have barely expanded credit to small and medium-sized enterprises in those areas. Analysts say a prolonged domestic slump has weakened regional economies while rising corporate delinquency rates leave banks with little room to lend more.
Loans by commercial banks to SMEs outside the capital region rose 776.3 billion won ($560 million) from April through June, the Bank of Korea said on the 15th. Lending increased 1.2684 trillion won in April and 993 billion won in May, but fell 1.4851 trillion won in June alone. Over the same period, SME lending in the capital region — Seoul, Incheon and Gyeonggi Province — rose 10.6699 trillion won, 13.7 times the increase outside the region.
The Financial Services Commission had eased the loan-to-deposit ratio rules for banks to channel more funding to companies based outside the capital region, but the measure has had virtually no effect. Banks can extend loans only within the limits of their deposits, and starting in April the government lowered the loan-to-deposit weighting applied to loans to companies outside the capital region to 80% from 85%. The government estimated the change would create an additional 14.1 trillion won in lending capacity for those companies.
Credit has not flowed despite the deregulation because loan demand itself has shrunk amid the regional downturn. As of the end of June, SME delinquency rates at major regional banks topped 1% — 1.90% at The Jeonbuk Bank, 1.61% at Kyongnam Bank and 1.45% at The Kwangju Bank — leaving them under heavier pressure to manage asset quality and with less capacity to expand lending, according to one interpretation. An official at a regional bank said this is a time to focus on managing asset quality, as rate increases, weak domestic demand and a property market slump are all expected to persist in the second half of the year, adding that expanding loans is not easy.
