Tightening Loans on All Fronts Threatens to Cut Off Small Business Funding (Comprehensive)

Banks Mobilize All Available Means to Curb Loans

Reference image (Source=Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] As financial authorities increase pressure, commercial banks are consecutively tightening loans, raising concerns about cash shortages among small business owners. Banks may treat general individual business loans more conservatively to manage total loan volume.

With the spread of the novel coronavirus infection (COVID-19) intensifying to the point where discussions about raising social distancing to level 3 are underway, if loan access tightens further, the impact on small business owners could be significantly greater.

According to the financial sector on the 14th, banks are focusing on curbing the overall increase in household loans by employing all available methods such as suspending loan issuance, reducing limits, and raising interest rates, following guidelines from financial authorities. The authorities aim to prevent excessive capital inflow into real estate and stock markets through 'targeted regulations' on loans to high-income earners and non-living expenses.

However, concerns are being raised inside and outside the banking sector that this trend could worsen overall loan tightening. A representative from a commercial bank pointed out, "Strengthening regulations on loans for specific groups like high-income earners or certain types of loans may have temporary effects, but for long-term management, it is inevitable to control loans of a general nature that make up a significant portion of the total volume."

Another bank official expressed concern, saying, "If there is no meaningful change in the figures despite targeted regulations, we may need to look for other measures."

No issuance, removal of preferential interest rates, and lowering limits

Meanwhile, banks continue to implement 'unprecedented' measures to suppress loan growth.

Woori Bank reduced preferential interest rates on credit loan products such as 'Woori Main Salary Employee Loan' and 'Woori Financial Club' starting from the 3rd. The preferential interest rate given for salary transfers to Woori Bank accounts was lowered from 0.2% to 0.1%, or preferential rates provided under conditions like subscription and maintenance of installment savings products were eliminated. Additionally, from the 11th, Woori Bank stopped issuing the 'Woori WON Salary Employee Loan.'

KB Kookmin Bank has effectively suspended household credit loans exceeding 100 million KRW from this day until the end of the year. New applications or requests for increases that would cause the total credit loan amount to exceed 100 million KRW will not be approved. KB Kookmin Bank has already decided not to handle mortgage loans and jeonse (key money deposit) loans through loan counselors until the end of the year.

Shinhan Bank also lowered the credit loan limit for professionals such as doctors and lawyers to 200 million KRW starting today. Furthermore, from the 15th until the end of the year, Shinhan Bank will not accept non-face-to-face applications for employee credit loans, including the 'Solpyeonhan Employee Credit Loan,' and will not accept mortgage loans or officetel collateral loans through loan agents.

NH Nonghyup Bank is also responding with measures such as reducing limits on major loan products and suspending preferential interest rates on credit loans.

As banks accelerate loan tightening, the surge in household loans appears to be slowing down for now. The outstanding balance of credit loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 133.5689 trillion KRW as of the 10th of this month, down 123.5 billion KRW from the end of last month (133.6925 trillion KRW). During the same period, the outstanding balance of mortgage loans also decreased by 494.6 billion KRW, from 470.4238 trillion KRW to 469.9292 trillion KRW.

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