Various Regulations and Supervisory Authority Oversight... Loan Thresholds Are Rising (Comprehensive)

Financial Supervisory Service Issues "Household Loan Growth Restraint" Guidelines to Banks
Mortgage Loan Regulations Expected to Raise Lending Thresholds
Calls for "Multifaceted Consideration of Potential Risks" Highlighted

[Asia Economy Reporter Kim Hyo-jin] It is expected to become even more difficult to borrow money from commercial banks this year. This is because the financial supervisory authorities are accelerating the management of household loans by banks amid the government's loan restriction policies aimed at stabilizing the real estate market being implemented one after another.

In addition, with the introduction of the new loan-to-deposit ratio (the ratio of loan balances to deposit balances in banks) regulation starting this year, banks have no choice but to operate household loan businesses conservatively, which is expected to raise the borrowing threshold for ordinary citizens even higher.

According to the financial sector on the 29th, the Financial Supervisory Service recently issued guidelines to major banks to curb the increase in household loans this year. This decision was made because the growth rate of household loans by banks last year exceeded the target, indicating the need for management.

A Financial Supervisory Service official said, "We are checking whether household loans are increasing too much in order to manage the total volume of loans and enhance bank management and macroprudential soundness." The Financial Supervisory Service plans to soon receive and review management plans from banks that lower the target for household loan growth this year.

As of the end of last year, the total household loans of the five major commercial banks?KB Kookmin, Shinhan, KEB Hana, Woori, and NH Nonghyup?amounted to 610.7562 trillion won, an increase of 7.1% compared to the end of the previous year. NH Nonghyup Bank's loans increased by 9.2% to 112.4466 trillion won. Shinhan Bank rose 9.0% to 115.8748 trillion won, and KEB Hana Bank jumped 7.8% to 114.7684 trillion won.

The target growth rate for household loans by banks last year was below 6%. The significant increase in household loans is analyzed to be due to a surge in real estate loan demand before the full-scale implementation of ultra-strong restriction measures.

Last year, the government’s '12.16 Real Estate Measures' completely banned housing loans for owners of homes exceeding 1.5 billion won, and from the 20th of this month, it also blocked jeonse (long-term deposit lease) loans for owners of homes exceeding 900 million won. In addition, the financial supervisory authorities are intensifying 'side pressure' through overall management strengthening.

From the banks' perspective, alternatives are needed to manage profitability through loan interest. A representative from a commercial bank said, "It is not easy to maintain a balance in overall loan operations while responding to government and authorities' policies," but added, "The basic stance is to actively cooperate and seek solutions for now."

Another commercial bank official predicted, "Not only housing loans but also the screening for other household loans will become stricter immediately," and "Even if an individual's financial situation has not changed significantly, loans that were previously possible may become difficult in the future."

The new loan-to-deposit ratio regulation also acts as a factor tightening household loans. Starting this year, when calculating the loan-to-deposit ratio, the weight of household loans must be increased by 15%, while the weight of corporate loans must be decreased by 15%. This is to slow the increase in household debt and encourage more funds to flow to companies, especially small and medium-sized venture businesses. If the loan-to-deposit ratio exceeds 100%, loan handling will be restricted, and financial authorities will impose sanctions.

Banks’ concerns inevitably deepen. The structural recession continues, and there are limits to the self-sustainability of small and medium-sized venture companies, which creates a heavy burden. Aggressive asset business has also become difficult due to incidents such as overseas interest rate-linked derivative-linked funds (DLF) and Lime Fund scandals.

A financial sector official pointed out, "Banks are likely to raise interest rates beyond strengthening screening criteria," adding, "If this happens, demand for secondary financial institutions may increase, raising potential risks, so the financial supervisory authorities need to consider these aspects comprehensively."

This content was produced with the assistance of AI translation services.