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Delhi, New Delhi, India, 2007/07/10 - South Korean banking industry, historically, has been very aggressive in giving loans. But now it’s tightening the supervision on bank lending to SMEs and for housing needs to curb inflation in bad credit loans.
Loans provided by South Korean banks are expected to increase at a CAGR of more than 19.2% during 2007-2011, exceeding US$ 1278 Billion in 2011, according to a recent report “South Korean Banking Industry Analysis (2007-2011)” by RNCOS. Increasing credit demand for Small and Medium Enterprises (SMEs) and housing loans are expected to push the growth up.
South Korean banking industry will step up the oversight of bank loans to SMEs, a week later the country’s chief financial regulator stated that intense competition may result in growing loan defaults.
The Financial Supervisory Service reported that loan reviews to smaller enterprises will be conducted daily, an information-sharing system will be set up among banks, alongwith the strengthening of credit analysis system to check the hike in bad credit loans. Yoon Jeung Hyun, Chairman, Financial Supervisory Commission, told local banks to take precautionary steps in case of an unexpected slump in housing prices and high interest rates resulting in more bad loans, as reported by International Herald Tribune on May 22, 2007.
"The government is trying to preempt the possible risks associated with bank lending to smaller companies, which are vulnerable to economic downturns," stated Ku Yong Uk, an analyst at Daewoo Securities in Seoul. The 18 banks of the country had cumulative outstanding loans of over $340 Billion to SMEs as of 31, March 20007, high by around 4.74% from December 31, 2006.
In November last year, The Bank of Korea, for the first time in nearly 17 years, increased the reserve requirements for short-term deposits on banks. The motive behind the move was to control lending, that has played a major role in sending housing prices northwards. As per the financial regulator, delinquency ratio (of bank loans to small companies) had reached around 1.24% as of March end 2007 from over 1% in end 2006.
The report “South Korean Banking Industry Analysis (2007-2011)” by RNCOS has found South Korean banking industry as very aggressive in providing loans to public as its loan-deposit ratio has moved up by over 13.9% during 2001-2006, surpassing 88.5% at 2006 end from nearly 75.37% in 2001. This indicates that a major share of deposits is being employed in meeting the lending requisites.
The market research report provides a comprehensive overview of South Korean banking industry including economic condition of the country, its financial system, types of banks, and industry performance.
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