"Borrowing to invest is now a burden" ... Credit loans at five major banks fall by KRW 1 trillion

[Financial News] Credit loans at the five major commercial banks fell by more than KRW 1 trillion in two months. The decline is believed to have resulted from weaker demand for debt-funded investing as the KOSPI Composite Index repeatedly plunged and rebounded, while market interest rates rose following the Bank of Korea (BOK)'s policy-rate hikes.
According to the financial sector on the 26th, the outstanding balance of credit loans at the five major commercial banks—KB Kookmin Bank, Shinhan Bank, Bank of Hope, Woori Bank and Nonghyup Bank—stood at KRW 108.7451 trillion as of the 21st. Compared with KRW 109.7533 trillion at the end of July, the balance decreased by KRW 1.0082 trillion. After falling by KRW 181.5 billion in August, it declined by another KRW 826.7 billion this month.
Credit loans had continued to grow since May, supported by the booming stock market and other factors. They increased by more than KRW 2 trillion in both May and June, when the KOSPI Composite Index was rising particularly sharply, and grew by KRW 1.0829 trillion in July.
The slowdown in credit-loan growth coincided with a sharp correction in the stock market. The KOSPI Composite Index reached an all-time intraday high of 9,385.59 on June 19, but closed at 5,663.24 on July 29, down 39.7% from its peak. In particular, it plunged 10.84% on July 28 and 5.98% on July 29, triggering circuit breakers on two consecutive days. Although the index subsequently rebounded, it continued to experience wide swings, falling 5.80% in a single day on the 19th of last month. During this period, the increase in credit loans narrowed in July and turned into a decline from August.
Rising interest rates added to the pressure. The BOK raised its policy rate by 0.25 percentage points in both July and August, bringing it to an annual rate of 3.00%. The consecutive rate hikes by the BOK, along with rising long-term interest rates in major economies, pushed Korean Treasury bond yields higher across all maturity ranges at the end of August compared with the end of the previous month.
Higher market interest rates raise banks' funding costs and put upward pressure on credit-loan rates. New borrowing becomes more expensive, while interest payments on existing variable-rate loans may also increase when rates are reset. Because investors must achieve higher returns than before to earn a profit after accounting for interest costs, they have less incentive to borrow money for investment.
A banking-sector official said, "Investors who had been willing to bear the interest burden while expecting stock prices to rise may have become more cautious about additional borrowing as sharp declines and rebounds continued to repeat." The official added, "Even if the stock market rebounds, the burden of high interest costs will remain, so demand for investments using credit loans is likely to remain subdued for the time being."
[email protected] Ye Byung-jung Reporter