Should We Ride the Stock Market Higher?... Unusual Surge of 450 Billion Won in Credit Loans Just 4 Days After Resumption

Demand Surges Immediately After Lockdown Lifted
'Debt Investment' Demand Also Increases

[Asia Economy Reporter Jo Gang-wook] As soon as commercial banks loosened restrictions on unsecured loans at the beginning of the new year, loan demand has been increasing daily, with loan amounts exceeding 450 billion KRW in just four days. This is believed to be due to so-called ‘panic loans’ triggered by fears that lending could be blocked again following last year’s financial authorities’ loan regulations. The surge in ‘debt investment’ or ‘debt-fueled investing’ is also attributed to the KOSPI breaking through the 3,000-point mark for the first time ever, ushering in the ‘Samcheonpi era’ from the start of the year.

According to the financial sector on the 8th, the outstanding balance of unsecured loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?increased by 453.3 billion KRW over four trading days from January 4 to 7. On the first day of unsecured loan resumption on January 4, which had been temporarily suspended at the end of last year, the balance surged by 279.8 billion KRW, followed by increases of 64.7 billion KRW on the 5th, and 60.4 billion KRW and 48.4 billion KRW on the 6th and 7th, respectively.

This upward trend is considered unusual compared to previous years. Typically, in January, unsecured loan demand decreases and savings and deposit balances increase because year-end bonuses are paid during this period.

A representative from a commercial bank said, "The psychology of borrowers who experienced a ‘loan cliff’?‘let’s just get it for now’?and the debt-fueled investing craze driven by the stock market rally seem to have played a role."

Last year, when financial authorities imposed regulations on unsecured loans, commercial banks effectively locked down lending by tightening loan restrictions. In fact, the outstanding balance of unsecured loans at the five major banks decreased by 44.3 billion KRW at the end of December compared to the previous month. However, with the resumption of unsecured loans in the new year, suppressed demand surged all at once, accelerating the growth rate of unsecured loans, according to banking sector analysis.

The financial authorities are closely monitoring the situation. Within three days of the resumption of unsecured loans, more than 20% of the monthly unsecured loan increase limit (20 trillion KRW) managed by the financial authorities was used up. However, since some banks have only eased the unsecured loan limits they had previously reduced, the authorities plan to observe the situation for the time being.

At the end of last year, there was an outcry from office workers and small business owners who were pushed to the ‘loan cliff’ due to government and bank loan regulations aimed at curbing household debt growth by reducing loan demand. Following the financial authorities’ request to manage total household loans, savings and deposits at the five major commercial banks shrank by about 7.5 trillion KRW in one month. In addition to analyses that ‘money moves’ are occurring from savings and deposits to stock market and real estate waiting funds due to continued ultra-low interest rates, there are also concerns that social distancing at level 2.5 and year-end difficulties in the self-employed sector have increased urgent cash needs among ordinary people.

Although the previously blocked unsecured loan channels have reopened, loan conditions for ordinary people are expected to worsen this year. Yoon Seok-heon, Governor of the Financial Supervisory Service, said at a press briefing at the end of last year, "Total loan volume regulations (on banks) will be necessary for the time being." Furthermore, a regulatory plan that sets the total loan amount based on income is expected to be introduced in the first quarter of this year, raising concerns that more ordinary people will be driven to high-interest private loans.

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