South Korea's Economic Slowdown

In the shadow of global and domestic uncertainties, South Korea witnessed its lowest loan growth since 2008 in the fourth quarter of last year. The total loans taken out by domestic companies and self-employed individuals from banks and financial institutions increased by only 3.3 trillion won. This significant slowdown is largely attributed to the heightened external risks following the inauguration of U.S. President Donald Trump and increased domestic political uncertainties, including martial law and impeachment proceedings.

Loan Growth Trends

According to the "2024 Q4 Loans by Industry at Deposit-taking Institutions" report, the outstanding balance of loans by industry at all deposit-taking institutions was 1,962.2 trillion won at the end of last year. The annual loan growth rate plummeted to 3.8% last year, a stark decline from previous years, indicating a downward trend since the COVID-19 pandemic.

Sector-wise Analysis

Facility loans, crucial for long-term investments, saw a minimal increase of 6.7 trillion won (0.7%) compared to the previous quarter, marking the lowest growth since 2008. The manufacturing sector experienced a modest increase of only 500 billion won, with significant declines in sectors like chemicals, medical products, and telecommunications. Conversely, the service sector saw an increase of 4.1 trillion won, although this growth was reduced compared to the previous quarter, primarily due to the real estate industry.

Impact on Corporations and SMEs

Operating funds decreased by 3.4 trillion won across various sectors, with manufacturing loans decreasing by 1.6 trillion won. Loans to large corporations among deposit banks decreased by 1.1 trillion won, while loans to small and medium-sized enterprises (excluding individual businesses) increased by 4.6 trillion won, albeit at a reduced growth rate.

Expert Commentary

The Bank of Korea highlighted, "The expansion of domestic and international economic uncertainties led companies to withhold facility investments, resulting in reduced loan growth." This cautious approach by businesses underscores the unpredictable economic environment shaped by global and domestic factors, drawing parallels to the 2008 financial crisis.