Concerns Over Housing Stability for Ordinary Citizens... Shinhan Bank Cancels Suspension of Jeonse Loans Except for Apartments (Comprehensive)

Shinhan to Suspend Loans for Apartments and Others from the 15th... No Loans for Villas, Multi-family Houses
Considering Lifting Restrictions When COVID Normalizes... Surge in Jeonse Loans This Year
Seems Aware of Criticism Over Halting Loans Used by Ordinary People

[Asia Economy Reporter Jo Gang-wook] Shinhan Bank abruptly canceled its plan to temporarily suspend major jeonse (long-term lease) loans excluding apartments. This move is interpreted as a response to criticism that it was trying to halt loans used by low-income households.

According to the financial sector on the 12th, Shinhan Bank initially decided to stop handling jeonse loans for newly built houses excluding apartments but later revoked this decision. If the plan had proceeded, starting from the 15th, jeonse loans for multi-family villas, detached and multi-family houses, officetels, and other properties under the Housing Finance Corporation and Seoul Guarantee Insurance guarantee products would no longer be available at Shinhan Bank.

Originally, Shinhan Bank planned to suspend some loans to slow the rapid increase in jeonse loans and focus its limited resources on loans supporting COVID-19 relief efforts.

With household loans rising sharply across the financial sector, especially jeonse loans and unsecured loans increasing the most, Shinhan Bank explained that it needed to control the pace of household loans to prioritize limited resources for supporting COVID-19 affected businesses and small business owners.

Since the beginning of this year, jeonse loans at major commercial banks including Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup have surged rapidly. The combined balance of jeonse loans at the five major banks at the end of January was 82.7533 trillion KRW, an increase of 1.4475 trillion KRW from the end of the previous month. Jeonse loans then surged by more than 2.6 trillion KRW in February and increased by about 2 trillion KRW in both March and April. Shinhan Bank’s increase was particularly notable. The monthly increase in jeonse loans was about 400 billion KRW in January but then sharply rose, exceeding 800 billion KRW in April, double that of January. Shinhan Bank’s jeonse loan balance was understood to have surpassed 20 trillion KRW in February, the first among the five major banks.

However, some have pointed out that Shinhan Bank might be strengthening conditions consecutively to reduce risk. In recent years, reckless gap investments have caused tenants to fail to recover their jeonse deposits, raising concerns in the financial sector about losses from uncollected loans. Amid this, warnings about loan defaults due to COVID-19 have been triggered, and Shinhan Bank’s preemptive measures are interpreted as risk management efforts. The fact that restrictions were imposed only on multi-family villas and similar properties with higher collateral risk compared to apartments supports this interpretation.

While other commercial banks currently have no plans to suspend jeonse loans, concerns have been raised that if resources for COVID-19 loans are depleted and other loans are slowed, a surge in "jeonse refugees" could occur. If other banks also suspend non-apartment jeonse loans, borrowers would have no choice but to turn to second-tier financial institutions with higher interest rates. Since multi-family villas and detached/multi-family houses are mainly housing types for low-income households, criticism has emerged questioning whether it is appropriate to suspend loans for low-income borrowers first amid worsening economic conditions.

A financial sector official said, "Due to the government's strengthened regulations on mortgage loans, jeonse demand has surged rapidly, causing the scale of jeonse loans in the banking sector to increase by about 2 trillion KRW recently," adding, "Shinhan Bank’s recent move appears to be an effort to curb the steep rise in jeonse loans amid increasing COVID-19 support loans."

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