Eatery, hospitality loan in Korea surge by the fastest pace on record in Q1

2020.07.22 14:39:51

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The record surge in lending by eatery and hospitability establishments suggests they are holding up business against virus crisis on loans.

The outstanding balance of loans extended to restaurants, hotels, and other business in the hospitality industry totaled 64.7 trillion won ($54.2 billion) in the January-March quarter, up 14.1 percent compared to a year earlier or the biggest year-on-year gain since data compiling from 2008, the Bank of Korea data showed Wednesday.

Restaurants and hotels’ borrowings from second-tier mutual savings banks and credit cooperatives grew at faster pace of 22.8 percent to 21.8 trillion won over the same period. Their loan from non-banking institutions hit record-high of 33.7 percent against total debt in the first quarter.

Nonbanking financial institutions’ lending to hospitality businesses totaled 42.9 trillion won in the first quarter but the growth doubled that of bank loans.

Hospitality businesses’ borrowings from nonbanks have been rising by double digits every quarter since the third quarter of 2013. The quarter-on-quarter growth slowed after peaking at 35.8 percent in March 2017, but has been rising again steadily from the third quarter of 2019 to reach 22.8 percent in the January-March quarter this year, the highest since the first quarter of 2018.

Hospitality business loans from savings banks also rose sharply in January-March period this year. The total gained 10.1 percent compared the same quarter last year, marking the first double-digit in four years.

While the COVID-19 outbreak struck the economy across the board, the hospitality industry was one of the hardest hit as people refrained from dining out to avoid virus infections while international tourism came to a standstill with border closures. In the first quarter, the production index of hospitality service industry dipped to 85.6, the worst since the first quarter of 2010. With the index based at 100 in year 2015, the figure below the base level in the first quarter this year means that the output from the hospitality service sector contracted.

When compared to a year-ago period, the hospitality service industry’s production index plunged 15.5 percent, the sharpest fall since data tracking began in 2000.

“Many are barely staying afloat with loans and they will end up going under if COVID-19 infections rise faster again to force social distancing,” said Cho Young-moo, senior economist at LG Economic Research Institute.

By Pulse

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