South Korea’s financial regulator is carefully monitoring local commercial banks’ lending to subsidiaries of Lotte Group in China, amid worries that their business might deteriorate with Beijing’s intensifying retaliation against Seoul over the deployment of an advanced US missile defense system here.

According to the Financial Supervisory Service, loans extended by Korean commercial banks to Lotte Group’s subsidiaries in China are estimated to be about 1.2 trillion won ($1.04 billion). Other foreign banks, including Chinese ones in Korea, have lent a combined 800 billion won to Lotte’s units in China, according to the FSS. 

Lotte Group has 22 subsidiaries that have made inroads to China to date, in industries including retail, food, tourism, petrochemical, finance and construction, according to the group.

The Chinese authorities have taken a hostile stance against Lotte after the group’s affiliate Lotte International approved in late February a land swap deal with the Seoul government to deploy the Terminal High Altitude Area Defense system in Seongju, where the subsidiary had a golf course, southeast of Seoul.

As it was a security and defense-related issue, Lotte could not help but cooperate with the government, an industry insider said. He noted that if the government had been more prudent in selecting the site for THAAD as well as in revealing it, it would have minimized damage to the group.

A Lotte Group spokesman said being mentioned by the media was a big burden, as Chinese authorities are keeping an eye on the Korean media.

The South Korean retail giant has five department stores, 99 hypermarkets and 16 supermarkets in China. However, the Chinese authorities had ordered Lotte Mart to shut down 55 of its 99 outlets in Asia’s largest economy as of Wednesday. A monthlong suspension of 55 outlets is expected to lead to a 50 billion won loss in revenue for Lotte Mart, according to news reports.

“If the level of retaliation intensifies in China, concerns will rise that Korean banks’ loans to Lotte units could turn sour. In that case, we have to monitor if those loans will affect local banks’ fiscal health,” an official at the FSS told The Korea Herald.

“We have not found any move by local lenders to tighten their lending to Lotte yet.”

An analyst of the banking industry at a brokerage declined to comment on the issue, citing too much uncertainty over how much Lotte Group will be affected over the THAAD row in terms of revenue.

If Beijing continues to hamper Korean businesses in China as reprisal over the THAAD row, Korean lenders who have subsidiaries based in China could also face difficulties in doing business there, observers said.

KEB Hana Bank, Woori Bank, Shinhan Bank and Kookmin Bank have subsidiaries in China and their combined assets there amounted to 20.7 trillion won as of the end of September, according to the FSS.

A KEB Hana Bank spokesperson said the bank has not spotted any change in the mood at its branch banks in 31 Chinese cities in the wake of the THAAD row.

By Kim Yoon-mi (yoonmi@heraldcorp.com)