Service sector loans post biggest quarterly rise in 3.5 years on derivatives, PF boost

Loans to the service sector by deposit-taking institutions rose at their fastest quarterly pace in 14 quarters, driven by higher derivatives margin requirements and an expansion of real estate project financing guarantee limits.

According to data on loans by industry at deposit-taking institutions for the second quarter of 2026, released by the Bank of Korea on Monday, outstanding service sector loans stood at 1,313.1 trillion won ($969 billion) as of end-June, up 19.9 trillion won from the end of the previous quarter. That was the largest quarterly increase since the fourth quarter of 2022, when loans rose 26.1 trillion won.

By sector, real estate and finance and insurance led the gains.

Real estate loans grew 6.2 trillion won in the second quarter, up from 2.5 trillion won in the first quarter. The Bank of Korea attributed the acceleration to improved lending conditions following an increase in the guarantee limit for real estate project financing loans. Loans to the finance and insurance sector also expanded more sharply, rising 6.2 trillion won in the second quarter compared with 4.8 trillion won in the first quarter, as securities firms and others borrowed more to meet higher margin requirements in the derivatives market.

Kim Seong-jun, head of the Bank of Korea's financial statistics team, said the stock market performed well through the second quarter, which drove heavy derivatives trading activity. "When margin rates rise, securities firms face greater demand for funds to post collateral, so borrowing increases," he said. "However, the stock market has weakened considerably since July, so lending should stabilize."

Growth in manufacturing loans slowed. Outstanding manufacturing loans reached 521.5 trillion won at the end of the second quarter, up 8.4 trillion won from the first quarter — a smaller gain than the 11 trillion won increase recorded in the first quarter. The Bank of Korea said companies' efforts to manage financial ratios at the half-year mark and early loan repayments by some firms weighed on facility loans in particular. Manufacturing facility loans grew 4.4 trillion won in the first quarter but only 1.4 trillion won in the second quarter.

The overall increase in industry loans edged down slightly in the second quarter. The total outstanding balance of industry loans across all sectors reached 2,065.3 trillion won at the end of the second quarter, up 30.6 trillion won from the end of the first quarter, compared with a 30.8 trillion won increase in the first quarter.

The quarterly increase in total industry loans had risen from 16.1 trillion won in the second quarter of last year to 21.1 trillion won in the third quarter, before shrinking to 9.7 trillion won in the fourth quarter. It rebounded sharply in the first quarter of this year before easing slightly again in the second quarter.

Kim said that while the pace of growth moderated somewhat this quarter, the overall rate of increase in industry lending continues to edge up. "Banks' strategies to expand corporate lending, in line with the government's productive finance policy, are having an effect," he said.

Breaking down second-quarter industry loans by purpose, working capital loans rose 23.8 trillion won, a larger increase than the 21.4 trillion won gain in the first quarter. Facility loans grew 6.9 trillion won, down from 9.4 trillion won in the first quarter.

By institution type, commercial banks accounted for 29.3 trillion won of the industry loan increase, up from 25 trillion won in the first quarter.

Among commercial bank loans, lending to large corporations grew 16.5 trillion won in the second quarter, up from 12.7 trillion won in the first quarter — the largest quarterly increase since the Bank of Korea began separately tracking large and small and medium-sized enterprise loans in the first quarter of 2021. Loans to small and medium-sized enterprises edged down slightly, rising 11.4 trillion won in the second quarter compared with 11.6 trillion won in the first quarter.

Loans from non-bank deposit-taking institutions rose 1.3 trillion won, a sharp slowdown from the 5.8 trillion won increase in the first quarter.

On the outlook for the third quarter, Kim said the government's push to expand productive finance remains a driver of industry loan growth, but countervailing forces — including banks' risk management and tightening conditions in regional real estate markets — mean how much lending will actually increase remains to be seen.