Loan delinquency rate of small, medium-sized firms reaches dangerous level


Commercial banks plan to lower interest rates on loans to small- and mid-sized enterprises as the delinquency rate in the industry has continued to rise.

The ratio of overdue loans in the SME sector has grown to a critical level, even surpassing the figure from the 2008 global financial crisis.

State-funded banks ― Woori Bank, Export-Import Bank of Korea and Industrial Bank of Korea ― have taken the initiative and other major banks are poised to join in.

Woori Bank is expected to slash the rates on a variety of lending products for SMEs in the coming weeks.

Export-Import Bank of Korea, which has been offering low rates for SME customers, plans to further cut lending rates during the first quarter of 2012.

Earlier this month, Industrial Bank of Korea CEO Cho Joon-hee unveiled his policy to lower the maximum interest rate on loans to below 10 percent next year.

Under the CEO’s commitment, the state-run IBK may provide the lowest lending rates in the local commercial banking sector.

Shinhan Bank has already set the range of the rate slash. It will lower the rates on loans for some SMEs, including prospective ones and long-standing customers, by a minimum of 0.5 percentage point and a maximum 1 percentage point.

Kookmin Bank said it would provide SME customers with products with lower rates in February.

“We are closely monitoring the matured loans to the industry. We plan to offer them bigger benefits and ease their burden for redemption,” a bank spokesman said.

Others that will join the rate cut include the National Agricultural Cooperative Federation.

According to the Financial Supervisory Service, the delinquency rate in the sector came to 1.83 percent at the end of October, compared to 1.7 percent at the end of 2008 when the country suffered difficulties from the global financial crisis.

The Korea Institute of Finance has advised that Korean banks beef up their risk management as the level of their loan delinquency remains high and could pose potential risks amid economic uncertainties.

In its report, the KIF said the bad loan rates on SME and project financing debts are still high and could lead to a rise in fresh bad loans amid a prolonged slump in the local property market and a slowing global economy.

“The environment for local banks is not all positive as regulations on banks are being tightened and uncertainties on the global economy are rising,” the report said.

By Kim Yon-se (kys@heraldcorp.com)