Since 2004, Korea’s credit to GDP ratio has increased by more than 20%, according to UBS’s economics team, far more than anywhere else in Asia.
Korean banks have a poor history of ill-fated lending, so is this the start of something ominous? Not according to John Wadle, UBS’s regional banking analyst.
"This doesn’t mean there’s a credit crisis looming," he says. "It just means the economy has matured from manufacturing to services and consumer-led growth."
He thinks the banks have learnt the painful lessons of the past when reckless lending to first chaebol (conglomerates), then consumers and finally SMEs, incurred ruinous losses for some banks.
"I think they’ve learnt a lot," says Wadle. "Barring some massive global shock, I’m very sanguine about Korean banks. If there’s a problem in Korea, it’ll be because of an extended manufacturing contraction and real estate downturn. In a deflationary environment, Korean banks will be killed, but so will all banks."