Business loans lead the liquidity jump this year


South Korea’s business loans have risen sharply this year amid the coronavirus outbreak, causing the country’s overall money supply to surge, central bank data showed on Wednesday.

The country’s M2 money supply stood at 3,065.8 trillion won ($ 2.56 trillion) at the end of May, up 10.6 percent from the previous year, according to data from the Bank of Korea (BOK).

This is the highest amount ever, and the year-over-year growth rate is also a record high.

Loans to businesses contributed over 60% of the annualized increase, with loans to households contributing only 20%.

Outstanding business loans increased by 177.3 trillion won during the cited period, accounting for 60.6 percent of M2’s gain of 292.6 trillion won.

A key economic indicator closely watched by authorities, M2 is a measure of money supply that includes cash, demand deposits, and other quasi-currencies that are readily convertible to cash.

At the end of May, outstanding business loans climbed 14.9% from the previous year, far exceeding the 4.9% increase in loans to households.

Local businesses are widely seen as having rushed to get cash amid the prolonged impact of the COVID-19 outbreak, combined with low interest rates.

In a bid to revive the virus-hit economy, the BOK has carried out two rate cuts in less than three months since the country confirmed its first case of the coronavirus on January 20, sending the policy rate to an all-time high 0.5%.

But observers said South Korean companies just seemed to be sitting on plentiful cash without spending their money on productive activities.

Loans to businesses increased by some 101 trillion won between January and May of this year, while their savings also increased by 46.7 trillion won during the period, the data showed.

“Businesses tend to get more funds through loans or other means as business conditions become more uncertain,” a BOK official said. “The central bank’s accommodative monetary policy can only become effective when abundant liquidity leads to investment.” (Yonhap)

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