Korea's big 4 banks hold household loans at 9 times the rate of Mitsubishi UFJ, report finds

South Korea's four major banks hold household loans at a share roughly nine times higher than Japan's largest financial group, Mitsubishi UFJ, a new report has found. The lopsided reliance on household lending could constrain the current government's push for productive finance, the report said.

According to a report released Saturday by Kim Seok-gi, a senior researcher at the Korea Institute of Finance, household loan portfolios at the country's four major commercial banks — KB Kookmin, Shinhan, Hana and Woori — ranged from 24.6 percent to 31.4 percent of total assets as of December last year, averaging 27.8 percent.

By contrast, JPMorgan held about $650.1 billion in consumer loans and about $843.4 billion in corporate loans as of December last year, with corporate lending clearly dominant. Consumer loans accounted for only about 14.5 percent of total assets.

At Mitsubishi UFJ, commercial and corporate loans totaled about 107.9 trillion yen out of roughly 131.4 trillion yen ($815 billion) in total loans as of March last year, making up the overwhelming majority of the portfolio. Consumer loans stood at about 13.1 trillion yen, representing 9.9 percent of total loans and just 3.1 percent of total assets.

The gap is equally stark when viewed through risk-weighted assets. Consumer loans accounted for only 15.8 percent and 7.9 percent of credit risk RWA at JPMorgan and Mitsubishi UFJ, respectively. South Korea's four major financial holding companies, however, ranged from 28.3 percent to 35.2 percent, averaging 31.2 percent — indicating that capital consumption is heavily concentrated in the consumer segment, the report said.

The picture was reversed for ultra-low-risk assets — deposits, government bonds and similar instruments with minimal principal loss risk and low volatility. JPMorgan and Mitsubishi UFJ held such assets at 29.2 percent and 41.8 percent of total assets, respectively, far above the 11.8 percent average for the four Korean banks.

A high share of ultra-low-risk assets reduces the overall RWA burden and serves as a capital buffer that allows banks to actively pursue high-risk, high-return lending and investment, the report said.

The asset structure of domestic banks, skewed heavily toward household loans, could act as a structural constraint on channeling funds to innovative companies and on expanding global commercial and investment banking operations, the report said. However, it added that a sharp or artificial reduction in household lending could trigger market disruption, given the unique demand characteristics of South Korea's housing finance market.

Large banks seeking to compete with global leaders and grow into international players should therefore consider a medium- to long-term shift that gradually reduces the share of household loans in total assets while building a portfolio that balances risk-free safe assets with higher-yielding ones, the report said.

A worker in his 30s surnamed Park took out an 80 million won ($52,500) unsecured loan from a bank last week. Having long considered borrowing to invest in shares, he moved quickly after the government recently tightened household loan management at commercial banks.

“대출 막히기 전에 8000만원 더 받자”…‘빚투 先수요’ 몰린다 [규제 전 대출 급증]

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