South Korea large companies showed greater loan delinquency ratio than smaller counterparts even as they are charged less for lending amidst ongoing restructuring and business downturn.
According to the Financial Supervisory Service (FSS), the loan delinquency rate of large companies averaged 0.71 percent in October, higher than the 0.58 percent average of small and medium-sized enterprises. It was the 19th month in a row for big companies to show a higher delinquency rate than their smaller counterparts, which is unusual considering that large companies are generally offered loans at lower interest rates.
In October 2017, the loan delinquency rate of large companies averaged 0.42 percent, 0.29 percentage points lower than that of SMEs. But the trend reversed from April 2018 after the restructuring of mid-sized shipbuilder Sungdong Shipbuilding & Marine Engineering Co. (Sungdong) began and pushed up the average loan delinquency rate of the country’s large companies to 1.76 percent. In the same month, SMEs’ loan delinquency rate averaged 0.64 percent.
Large companies’ loan delinquency rate fell to 0.73 percent in April 2019 after Sungdong’s restructuring process was completed but it started to rebound in June while SMEs managed to have lesser debts in arrears.
Market experts said the loan delinquency rates of both large companies and SMEs are still fairly low but it is uncommon for large companies with higher credit scores than SMEs to have higher loan delinquency rates. According to the Bank of Korea data, the lending rate for fresh loans to large companies averaged 3.05 percent in November while SMEs borrowed at an average rate of 3.45 percent.
An FSS official said the protracted slump in shipbuilding and shipping sectors, which are categorized as large companies, may have caused the unusual pattern as the loan delinquency rate reflects the real economy.
By Choi Seung-jin and Cho Jeehyun
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