Manufacturing industry in crisis to survive under loan
Cho Eun Ae | eunae@ | 2018-05-31 11:20:24

Industrial loans, including corporations, increased significantly as the manufacturing industry slowed. Especially, a significant portion of corporate loans were used as operating funds to resolve vulnerable management conditions rather than to invest in facilities to expand business or enter new industries. With the recent wage increase and the recession in the manufacturing industry, the business environment is deteriorating and it is concerned that corporate loans will increase sharply for the time being.

According to the Bank of Korea on May 30, the total loans by industry in the first quarter increased by KRW 18.3 trillion from the previous quarter to KRW 1069.8 trillion in the first quarter. It is the increase in the increase compared with the increase of KRW 15 trillion in the fourth quarter of last year.

Lending by industry has been steadily rising for five consecutive months since it decreased by KRW 900 billion in the fourth quarter of 2016. Especially, the manufacturing industry has slowed and overall corporate lending has been boosted. Manufacturing lending went up KRW 34.2 trillion from the previous quarter to KRW 341.7 trillion. It is double the amount compared to the KRW 1.9 trillion increase in the fourth quarter of last year.

The problem is that most of the companies that have increased lending use them to cover working expenses and working capital. The amount of working capital loans is also surging compared to the past. As of the end of March, corporate loans for working capital amounted to KRW 620.7 trillion, an increase of only KRW 8.1 trillion in the first quarter. This figure doubled from the previous quarter (KRW 4 trillion). The working capital is the money that the corporation needs to pay for wages, interest payment, and purchase of raw materials. Many corporations are estimated to have increased lending to offset the burden of increased labor costs and worsening business conditions.

Meanwhile, facility loans, which account for the majority of facility investment, were KRW 10.2 trillion in the first quarter, a slight decline from the previous quarter (KRW 10.9 trillion). It is said that facility investment to find future new industry or expand existing business has been reduced.

Economists believe that corporate lending has increased sharply, as the manufacturing industry has retreated and the labor cost burden has increased due to the rise in the minimum wage. Especially, it is pointed out that many companies are forced to lend working capital to maintain the status quo.

By Cho Eun Ae eunae@

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