Increase in Personal Loans 'Slowed'... One Week After Regulation Tightening, Real Borrowers Hit Hard (Comprehensive)

Targeted Regulation on Personal Loans Is a Big Blow to Genuine Borrowers
Loan Balances at 5 Major Banks Decrease by 234.3 Billion KRW in First 5 Business Days
"What Are We Supposed to Do If They Block Loans Even Though We Can Repay?" Complaints Raised

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Hyojin Kim] Kim Seongsu (44, pseudonym), who works at a solid large corporation with an annual income of over 80 million KRW, owns one home. His privately owned apartment is in Bundang, Gyeonggi Province, but since his workplace is in Mapo, Seoul, he rented a jeonse (long-term lease) house near his company two years ago. However, recently, the landlord asked him to vacate the apartment, saying they would move in themselves, putting Kim in a tight spot. He is currently looking for jeonse listings within the same complex, but due to the soaring jeonse prices, he needs to raise an additional 100 million KRW beyond his available funds. The problem is that recent credit loan regulations have been significantly tightened, making it difficult to secure funds. Kim expressed frustration, saying, "Finding a jeonse house is like catching a star in the sky, and now not only jeonse loans but also credit loans are blocked. What are we supposed to do if loans for high-credit borrowers who have good credit and repayment ability are blocked?"

One week after the tightening of credit loan regulations at commercial banks, the damage to borrowers with genuine needs is becoming a reality. There have been continuous complaints at bank counters about the stringent loan conditions, and online communities are also filled with dissatisfaction from borrowers who have sufficient repayment ability but cannot even get a chance to borrow. Although the loan amounts at the five major banks have significantly decreased in the week following the credit loan requirement strengthening, showing the effect of the regulation, anxiety among borrowers who have lost access to funds for living expenses is growing.

According to the financial sector on the 8th, the outstanding balance of credit loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stopped increasing due to the financial authorities' 'high-income credit loan' regulation implemented from the 30th of last month. The credit loan balance, which was 133.6924 trillion KRW on the 30th of last month, decreased by 234.3 billion KRW to 133.4581 trillion KRW on the 4th, the first week of the regulation. This contrasts with the first week of November (Nov 2?6), before the new credit loan regulation was announced, when the balance increased by 179.3 billion KRW.

The atmosphere after the regulation is also markedly different when comparing monthly credit loan balance trends. The credit loan balance at the five major banks last month increased by 4.8495 trillion KRW compared to October, more than double the increase of around 2 trillion KRW seen in September and October.

Since the 30th of last month, banks have applied a total debt service ratio (DSR) limit of 40% or less when high-income earners with an annual income exceeding 80 million KRW take out credit loans exceeding 100 million KRW. If an individual who has taken out a credit loan exceeding 100 million KRW purchases a house in a regulated area within one year, the credit loan will be recalled.

Borrowers with Genuine Needs Struggle with Credit Loan Regulations
"Why Regulate Loans When Housing and Jeonse Prices Keep Rising?" Complaints Mount

The problem is that while the loan threshold has risen, housing sale prices and jeonse prices are soaring, and economic uncertainty has increased due to the spread of COVID-19. There is growing dissatisfaction that only the funding channels for people who have the ability to repay loans are being tightened, even though there are still many expenses to cover.

Choi Minseok (45, pseudonym), who lives in Jung-gu, Seoul, expressed frustration, saying, "With the failure of real estate policies causing house and jeonse prices to skyrocket, what are they trying to do by blocking loans as well?" Prospective groom Choi Sanggon (36, pseudonym), who is getting married in May next year, also lamented, "My fianc?e and I were planning to each take out credit loans of 100 to 200 million KRW to buy a house, but now it's impossible. If they want to block credit loans as well as mortgage loans, they should have controlled house prices first before implementing this."

Complaints from customers at commercial bank counters are also increasing. A representative from a bank branch in Jung-gu, Seoul, said, "Since the 30th of last month, the number of customers coming to apply for credit loans at the bank branch has noticeably decreased. Even those who come for loan consultations mostly leave after hearing about the higher interest rates and lower possible loan amounts." A representative from Bank B said, "Some customers who did not secure funds before the regulation came into effect inquire about the exact criteria of the regulation. The branches are responding according to the manual, but I think there will be supplementary measures for specific cases in the future."

The slowed pace of credit loan growth in the banking sector is expected to continue under the strengthened regulations for the time being. Banks are tightening loans not only by applying the new regulations but also by reducing preferential interest rates, following the authorities' request to control loan speed. Internet banks are also raising interest rates to slow loan growth, such as KakaoBank recently increasing interest rates for high-credit borrowers on salaried worker credit loans and overdraft loans by 0.10 percentage points and 0.25 percentage points, respectively.

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