Lockdown Lifted but Uncertainty Remains... Will Credit Loans Surge Again? (Comprehensive)

Major Commercial Banks Resume Key Loan Products
Loan Growth Significantly Slows After December Freeze
High-Income and Professionals' Thresholds Remain Unchanged

[Asia Economy Reporter Kim Hyo-jin] "The number of customers visiting branches to inquire about unsecured loans has increased significantly compared to the same period in previous years." "It seems that many customers who tried to get loans at the end of last year but turned away due to suspension of handling are now flocking in early January." On the first business day of the new year, January 4, officials from major commercial banks described the atmosphere at key branches in this way.

As banks, which had raised the loan threshold until the end of last year due to tightening by financial authorities, have begun to gradually lift restrictions, it is expected that loan demand from office workers and others will flood in for the time being. There are concerns that the loan market may shrink again depending on additional management measures the government will soon announce. There is a forecast that movements to gather funds before regulations may appear due to the expected rise in the housing and stock markets this year.

According to the banking sector on this day, commercial banks that have implemented high-intensity loan regulations such as suspending major loan products from September last year until the end of the year are resuming loans one after another in the new year. KB Kookmin Bank and Shinhan Bank, which temporarily suspended handling unsecured loans exceeding 20 million KRW and the 'Solpyeonhan Office Worker Unsecured Loan' last month, started selling these products again from this day.

Woori Bank plans to resume sales of its main loan product, 'Woori WONhaneun Office Worker Loan,' within this month. Internet-only bank KakaoBank also resumed sales of its previously suspended overdraft unsecured loans on the 1st. Hana Bank is currently coordinating the timing to resume handling the 'Hana One Q Unsecured Loan.' NH Nonghyup Bank is slightly lowering the threshold by raising the preferential interest rate limits for household loans, which had been reduced last year.

However, banks plan to generally maintain the loan management policy targeting high-income and professional borrowers. This includes reducing loan limits and preferential interest rates, and temporarily strengthening the Debt Service Ratio (DSR) standards. This is due to the government's 'pinpoint regulation' policy aimed at preventing large loans granted to these borrowers from being excessively concentrated on real estate or stock investments rather than livelihood.

As regulations on actual loan demanders are relaxed like this, it is expected that the pace of those who had difficulty securing funds due to the loan freeze at the end of last year will accelerate for the time being. In particular, as the government is about to announce an advanced household loan management plan soon, it is anticipated that movements to secure as much funding as possible will intensify out of concern that loan access may tighten again.

Due to last year's debt-financed investment (Bitt-u) and all-in (Yeongkkeul) craze, unsecured loans at the five major banks surged from 124.2747 trillion KRW at the end of August to 126.3868 trillion KRW at the end of November. However, with loan access blocked in December, the increase slowed significantly to 133.8234 trillion KRW as of the 21st.

Market Uncertainty May Also Spur Loans

An official from a commercial bank said, "There is uncertainty in the loan market," adding, "The psychology that 'it will become difficult again after the beginning of the year' could sharply increase the total loan volume."

The government previously announced in the '2021 Economic Policy Direction Core Tasks by Ministry' that it plans to introduce an 'Advanced Household Debt Management Plan' centered on strengthening the Debt Service Ratio (DSR) regulation within the first quarter of this year. The DSR is an indicator showing the borrower's repayment burden relative to their repayment ability, calculated by dividing the annual principal and interest repayment amount of all loans held by the borrower by their annual income.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, mentioned this policy at the real estate market inspection meeting on the 22nd of last month, emphasizing, "We will check to ensure that measures such as household loan management plans including unsecured loans, application of borrower-level DSR to high-value and high-income unsecured loans, and strengthening post-management of large unsecured loans are implemented."

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