With Full-Scale Regulation on Bank Personal Loans, Savings Banks Face Increased 'Yeongkkeul Risk'

3rd Quarter Savings Banks Household Loans Increase at Fastest Rate
Loan Demand Shift Accelerates 'Balloon Effect'

[Asia Economy Reporter Kim Hyo-jin] "I'm trying to buy a house early next year, but I heard bank loans will become extremely difficult from the end of November. Where can I borrow money?" "Even with high interest rates, do I have to switch to savings banks?"

Recently, on an internet community, questions like these from people looking for new loan options have been continuously posted.

As financial authorities and banks tighten credit loans mainly targeting high-income earners, there is a growing atmosphere where people are actively seeking alternatives to either secure their own home by 'Yeongkkeul (pulling together all their resources)' before housing prices rise further or to accumulate investment and living funds.

In the financial sector, concerns are rising that the trend of "let's get as much as we can for now" is shifting to non-bank sectors, potentially sowing the seeds of future defaults.

According to the financial sector on the 30th, as of the end of September, the outstanding household loans at savings banks reached 29.5913 trillion KRW, an increase of 1.8267 trillion KRW compared to the end of the previous quarter. This is the largest increase since related statistics began in 2003. The growth trend is steep, with increases of 789.2 billion KRW in Q1 and 929.8 billion KRW in Q2.

A financial sector official said, "It seems that the threshold for bank credit loans has gradually risen since the last Chuseok holiday, leading to this phenomenon," and added, "The balloon effect of increased savings bank loans due to newly implemented loan regulations is expected to continue for the time being."

As loans surge, the delinquency rate is also showing signs of rising. As of the end of September, the total loan delinquency rate at savings banks was 3.8%, up 0.1 percentage points from 3.7% at the end of last year.

Although the household loan delinquency rate slightly decreased compared to the end of last year, it is anticipated that defaults could surface at any time once various COVID-19 related grace and support measures conclude.

A financial authority official stated, "If latent defaults materialize, the soundness of savings banks could deteriorate," and added, "We plan to closely monitor the soundness trends."

Meanwhile, starting today, high-income earners with an annual income of over 80 million KRW who seek credit loans exceeding 100 million KRW from banks will be subject to a Debt Service Ratio (DSR) of 40%.

DSR is the ratio of the borrower's annual debt repayment amount to their income. Previously, the DSR 40% regulation applied to bank loans secured by houses priced over 900 million KRW in regulated areas.

Also, if a credit loan exceeding 100 million KRW is taken and a house in a regulated area such as a speculative zone or speculative overheating zone is purchased within one year, the loan will be recalled.

Reference image of bank loan counter (Source=Yonhap News)

Ahead of the implementation of strengthened loan regulations, the number of overdraft accounts in banks surged to a record high due to a rush in loan demand. According to banks, the number of newly opened overdraft accounts in the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?on the 23rd reached 6,681 in one day.

This is 3.5 times the 1,931 accounts opened on the 12th, just before the announcement of credit loan regulations. A bank official explained, "Before the regulations started, loan demand in the banking sector surged to the maximum even in niche areas."

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