The competition in the domestic corporate loan market has been heating up since Woori and Shinhan actively expanded their presence in the sector with some lending with lower interest rates than funding costs.“The increased corporate loans with rising interest rates is likely to raise banks’ provisions for loan losses and hurt their profitability,” the country’s central bank said in a recent report, calling for thorough management of each industry’s risks.
The balance of corporate leading of local banks rose 21.2% to 1,291.6 trillion won as of end-May from 1,065.7 trillion won at end-2021 amid cut-throat competition in the banking industry.“As corporate clients rushed to lenders that offered lower interest rates by even 0.01 percentage point, loans with negative spreads, which banks provided lower interest rates than funding costs, soared,” said a vice president of a major domestic lender in charge of its corporate and investment (CIB) banking business.
Major financial holding companies asked their banking units to improve profitability, industry sources said.“The industry needs to lower unsecured corporate loans, which raise RWAs, as foreign shareholders are concerned over the falling CET1 ratio, which usually affects shareholder return,” said a chief financial officer of a major financial holding company.
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