1% Tier Credit Loans Disappear... High-Income Earners' Limits Also Reduced

Reducing Bank Preferential Interest Rates to Slow Down Loan Growth
Loan Limits for High-Income Professionals Also Reduced

[Asia Economy Reporter Kangwook Cho] Going forward, bank credit loan interest rates will rise, and the credit loan limits relative to annual income for some professionals will be reduced. This is because banks have started to control the total volume and pace of loans as the recent surge in credit loans has been identified as a potential financial risk threatening our economy. This is due to the continued practices of so-called 'debt investment' (debt-financed stock investment) and 'Yeongkkeul' (borrowing to the limit, including one's soul, to buy real estate). Accordingly, as the overall credit loan interest rate level is expected to rise, credit loan interest rates that were once as low as the 1% range are unlikely to be found in the market.

According to the financial sector on the 16th, commercial banks are understood to be reviewing voluntary credit loan management measures such as lowering preferential interest rates. Typically, to borrow money at the lowest interest rate from a bank, one must receive the maximum preferential interest rate (interest discount) benefits granted based on various additional conditions such as having an account with the bank, using affiliated credit cards, and subscribing to financial products. The level of preferential interest rates varies by bank product but ranges from about 0.6% to up to around 1%. Ultimately, banks explain that by reducing the preferential interest rate margin and raising the credit loan interest rate level compared to now, the pace of loan growth can be somewhat slowed.

Reducing Preferential Interest Rate Discounts to Adjust Credit Loan Interest Rates

As of the 10th, the credit loan interest rates of the five major commercial banks range from 1.85% to 3.75% (based on each bank's representative credit loan product). If banks reduce the preferential interest rate margin and raise credit loan interest rates, the symbolic '1% range credit loan interest rate' will disappear. One commercial bank has already reduced the preferential interest rate discount margin by 0.2 percentage points starting from the 1st of this month.

Along with this, banks are also considering lowering credit loan limits for special professions including doctors and lawyers. Bank credit loans are generally made within 100% to 150% of annual income. However, for special professions, it was not uncommon to borrow up to 200% of annual income from banks. For example, if the annual salary is 150 million KRW, the amount that can be borrowed solely through unsecured credit loans can reach 300 million KRW.

The reason why commercial banks have started self-management regarding credit loans is that the Financial Supervisory Service recently requested banks to submit credit loan management plans including the scope of high-value credit loans and plans to control the pace of loans. Credit loans from commercial banks have continued to surge, increasing by 1.1425 trillion KRW in just 10 days (8 business days) this month.

Credit Loan Surge Attributed to High-Income 'Investment Demand'

The Financial Supervisory Service views that the surge in credit loans is driven by high-income and high-credit borrowers. If the loan amount is around 50 million to 100 million KRW, it can be considered for general living expenses, but credit loans reaching 200 million to 300 million KRW are likely for 'investment demand.' The FSS also pointed out the competition among banks for non-face-to-face credit loans and refinancing loans. Recently, banks have competitively launched non-face-to-face products, also called 'cup noodle loans' because they are approved within minutes, increasing loan accessibility for high-income and high-credit borrowers.

A commercial bank official said, "Since financial authorities cannot tighten credit loans for the 'living expenses' of ordinary people, it can be interpreted as a 'signal' to reduce credit loans for high-credit, high-income professionals borrowing hundreds of millions of won at low interest rates," adding, "Ultimately, banks will have no choice but to become stricter in credit loan screening by raising loan interest rates or reducing limits."

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