Small-business loan defaults hit 11-year high

Résumé détaillé

Loan delinquencies among South Korea’s small and medium-sized corporations reached an 11-year high in August, raising concerns that banks will increasingly favor large,…

Loan delinquencies among South Korea’s small and medium-sized corporations reached an 11-year high in August, raising concerns that banks will increasingly favor large, financially stronger borrowers and further restrict credit to struggling smaller businesses.

The delinquency rate for loans to small and medium-sized corporations exceeded 1 percent in August as worsening business conditions strained their ability to repay debt. Analysts warn that tighter credit risk management could deepen the financing divide between large corporations and smaller firms.

The Korea Institute of Finance (KIF) warned Tuesday at its 2027 Economic and Financial Outlook Seminar that competition among banks for a limited pool of creditworthy corporate borrowers is likely to intensify next year.

With regulatory limits on household lending expected to remain in place, banks are likely to focus more heavily on loans to large corporations to protect profitability and maintain asset quality, the institute said.

The divergence between large and small corporate borrowers is already evident in lending data.

According to the Bank of Korea’s Economic Statistics System, total corporate lending increased 5.9 percent year on year in August, while lending to SMEs grew just 3.9 percent.

The figures suggest that smaller companies are receiving a disproportionately limited share of new credit even as overall corporate lending continues to expand.

KIF expects widening disparities in corporate performance to place additional pressure on financially vulnerable industries, potentially increasing banks’ exposure to troubled borrowers.

Loan delinquency rates have generally risen since 2022 across five particularly vulnerable sectors: construction, petrochemicals, fabricated metal products, wholesale and retail trade, and real estate.

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