"Restrictions on Circumventing Mortgage Loan Regulations Inevitably Shrink Card and Loan Industry Markets"

The government announced the "Housing Market Stabilization Plan," which includes strengthening the comprehensive real estate tax on high-priced housing and regulating mortgage loans for apartments priced over 1.5 billion won in speculative areas and speculative overheating districts. On the 17th, a price list was posted at a real estate agency office in Songpa-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Kangwook Cho] An analysis has emerged suggesting that the Financial Supervisory Authority's prohibition on circumventing housing mortgage loan regulations through the loan business will negatively impact the profitability of loan businesses. Additionally, regulations on high-interest loans are expected to be further tightened, which is also anticipated to affect the profitability of credit card companies.

Announcement of Prohibition on Circumventing Loan Regulations through Loan Businesses

According to the financial sector on the 29th, the Financial Supervisory Service recently announced a prohibition on circumventing housing mortgage loan regulations through loan businesses.

The cases of regulatory circumvention involve savings banks and credit card companies setting a pledge on the loan business operator's housing mortgage-backed loan claims and lending to the loan business operator. As of the end of June, the outstanding loan balance reached 1.03 trillion KRW. Furthermore, the Financial Supervisory Service stated that it plans to focus on inspecting whether credit loans are reflected in DSR calculations and whether loans to individual business owners/corporations are used for housing purchase purposes.

Outstanding Loan Balances in Loan Businesses Continue to Decrease... Possibility of Slight Reduction in Statutory Maximum Interest Rate

According to the Financial Supervisory Service, as of the end of last year, the outstanding loan balance of registered loan businesses was 15.9 trillion KRW, of which secured loans accounted for about 7 trillion KRW. With the possibility of a reduction in the maximum interest rate emerging, unsecured loans decreased by 1.7 trillion KRW over six months from 10.6 trillion KRW at the end of June last year to the end of December, while secured loans increased by about 930 billion KRW during the same period.

Researcher Byunggeon Lee of DB Financial Investment said, "With this pledge-backed loan being blocked, overall secured loans in the loan business are expected to shift to a declining trend," adding, "There is also a possibility of a slight reduction in the statutory maximum interest rate."

In fact, recently, Gyeonggi Province Governor Jaemyung Lee argued that the maximum interest rate should be lowered from the current 24% to 10%. Additionally, on the 25th, Financial Services Commission Chairman Eun Seongsoo responded at the National Assembly's Finance and Economy Committee plenary session, saying, "There is doubt whether borrowers can repay at the 24% maximum interest rate," and added, "The government authorities should make efforts to reduce the interest rate, but a rapid reduction would be difficult."

Researcher Lee explained, "While the possibility of a rapid reduction in the maximum interest rate is low, the possibility of a 2-4 percentage point reduction cannot be ruled out."

Concerns over Negative Impact on Profitability of Credit Card Companies and Loan Businesses

Accordingly, concerns are rising over the negative impact on the profitability of credit card companies and loan businesses. Since the statutory maximum interest rate was lowered from 27.9% to 24% in February 2018, the outstanding loan balance of registered loan businesses has continuously decreased.

Researcher Lee pointed out, "Loan business operators have hardly benefited from reductions in selling and administrative expenses and funding costs due to restrictions on loan recruitment advertisements and difficulties in funding," adding, "If the statutory maximum interest rate is lowered following the recent collateral submission restriction measures, a rapid market contraction is likely to occur."

Moreover, for credit card companies' card loans, the proportion of loans with interest rates above 20% ranges from 3% to 20% depending on the company. The government's housing mortgage loan regulations and compliance inspections are spreading comprehensively, and the possibility of further tightening regulations on high-interest loans is increasing.

Researcher Lee predicted, "While the industry will try to minimize negative impacts, it is inevitable that credit card companies and loan businesses will suffer hits to their profitability."

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