Local banks are increasing their assets mostly through loans, especially those to households that are home-collateralized, an analysis report from the Financial Supervisory Service (FSS) said Tuesday.
The report, which tracks asset management by banks since the global financial crisis of 2008, said their total assets grew at an annual average of 3.6 percent compared to 5.1 percent expansion in nominal gross domestic product. Asset growth was 11.7 percent in 2007, 21.8 percent in 2008.
The blunted growth was attributed to strengthened capital restrictions enforced after the financial crisis, which limited banks' stock holdings, and a reduction of corporate bonds to evade risk.
Household loans replaced them, accounting for 64.6 percent of the total assets last year, compared to 53.6 percent at the end of 2008.
Corporate loans are still bigger than household loans at 54.2 percent to 43.8 percent, but the pace of increase is faster for household lending at 6.2 percent compared to 5.4 percent for corporate loans.
Among household loans, home-collateralized lending was predominant at 70.2 percent, compared to 29.8 percent for types of credit loans, the report said.
Banking industry officials say household loans are more profitable, delivering 2.96 percent in risk-adjusted returns. The corresponding return for corporate loans in 2.61 percent. Household loans are counted less risky when measuring the bank's capital adequacy ratio by the Bank for International Settlement standard, they point out.
Corporate lending was skewing toward private businesses, especially those in property lease, the report showed. The proportion of loans to private businesses rose to 35.3 percent of corporate lending at the end of last year, up from 25.7 percent at the close of 2008. Of the money lent to private businesses, 39.2 percent went to people engaged in real estate rentals.
"Debt demands for real estate business have risen from low interest rate and post-retirement planning," the FSS said. "Additionally, banks have taken the strategy of enlarging their assets through collateral-based loans."
The report showed that the proportion of loans to small and medium-sized businesses among corporate lending reached 58.1 percent by end of 2017 from 43.3 percent at the end of 2008. Analysis said 93.8 percent of the loans had real estate as collateral.
"The banks' preference for household loans is based on consumer demands and other economic inducements, making it difficult for self-correction by the market," the FSS said. "We need to fortify systematic tools on a sustained basis to improve productive financing." (yonhap)