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Biz groups up borrowing on looming credit crunch

Finance 08:52 March 24, 2020

SEOUL, March 24 (Yonhap) -- Major business groups in South Korea greatly expanded their bank loans this month, data showed Tuesday, amid a potential credit crunch caused by the new coronavirus outbreak that apparently limited their direct financing.

As of March 20, outstanding loans extended by five major banks to large companies came to 78.7 trillion won (US$61.8 billion), up nearly 1.8 trillion won from end-February, according to the data from the banks.

The increase marks a sharp acceleration from an increase of around 788 billion won in the entire month of February.

In the photo, taken March 4, 2020, a makeshift signboard at a bank in Daegu, one of the epicenters of the new coronavirus in South Korea, located some 300 kilometers south of Seoul, says the line for counseling on special loans for businesses hit by the virus outbreak has closed for the day with more than 200 people already standing in line. (Yonhap)

Such an increase also marks an unusual development, according to bank officials, who noted loans extended to large firms rarely fluctuate as conglomerates generally rely more on direct financing.

For instance, the outstanding bank loans to major business groups came to 73.8 trillion won as of the end of January, down only 512 billion won, or 0.7 percent, from two years earlier.

Loans extended to small and midsized firms, on the other hand, jumped by more than 61 trillion won or 16 percent over the cited period to 447.2 trillion won from 385.4 trillion won.

"Large companies appear to be taking out additional loans within their credit line to secure necessary funds," an official said.

The Bank of Korea (BOK) has slashed its base interest rate by half a percentage point to a new record low of 0.75 percent, in a move to spur spending amid the spread of COVID-19.

"There has been a rise in requests for loans, citing difficulties in refinancing maturing bonds," a bank official said, noting low yields on bonds may be a reason for difficulties in direct financing. Over 6.5 trillion won in corporate bonds are scheduled to mature before the end of April, according to the Korea Financial Investment Association.

The government earlier said it will set up a new bond market stabilization fund, worth at least 10 trillion won.

"Someone has to play the role of circulating the fund by purchasing corporate bonds," Finance Minister Hong Nam-ki has said.

The BOK said Monday that it will purchase an unspecified amount of local bonds this week to help prevent a possible credit crunch facing local companies in its second publicized repo operations in less than a week.


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