Startled by the Surge in Credit Loans Early This Year... Is the Loan Freeze Coming Back?

Financial Supervisory Service Checks Loan Status of Major Commercial Banks
On Alert for Possible Reinstatement of Strict Loan Regulations

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

[Asia Economy Reporter Kim Hyo-jin] As the new year begins and restrictions are lifted, the banking sector's credit loans are showing signs of another surge, prompting financial supervisory authorities to launch an immediate inspection. With the KOSPI continuously breaking records, stimulating demand for 'debt investment (debt-fueled investment),' credit loans could significantly increase for the time being, suggesting an intention to preemptively manage the market sentiment. Consequently, attention is focused on whether the stringent loan regulations implemented by banks until the end of last year will be reinstated.

According to the financial sector on the 11th, the Financial Supervisory Service held a video conference this morning with deputy heads of credit departments from major commercial banks including KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup. The purpose was to receive reports on each bank’s credit loan handling status and analyze the causes of the rapid loan increase at the start of the year.

The Financial Supervisory Service is known to have focused particularly on cases of high-value credit loans exceeding 100 million KRW. The government’s fundamental stance is to implement 'targeted regulations' on high-value credit loans used for non-living expenses such as real estate investments by high-income and high-credit borrowers.

As of the 8th of this month, the outstanding balance of credit loans at the five major banks totaled 133.8861 trillion KRW, an increase of 23.79 billion KRW compared to the end of December last year (133.6482 trillion KRW). Although slightly lower than the balance on the 7th (134.1015 trillion KRW), considering only five business days have passed since the new year, the growth rate is relatively steep. It is analyzed that demand surged all at once as the suspension measures implemented until the end of last year were lifted at the start of the new year.

This trend is closely related to the stock market. On the morning of the same day, the KOSPI surpassed the 3,200 mark, driven by buying from individual investors. The intraday record high of 3,161.11 set on the 8th was broken within one trading day. As of 10:30 a.m., top market capitalization stocks such as Samsung Electronics (4.84%), Hyundai Motor (13.21%), and Hyundai Mobis (6.26%) also surged sharply on positive news.

Notably, major companies with corporate values in the trillion KRW range, such as KakaoBank, SK Bioscience, and LG Energy Solution, are scheduled for initial public offerings (IPOs) early this year. This is also expected to contribute to increased loan demand.

Soaring Stock Market May Stimulate Loan Sentiment

The banking sector expects demand to continue as investors try to jump into the heated stock market by any means. A representative from a commercial bank said, "There is uncertainty in the loan market," adding, "The sentiment that 'it will become difficult again after the beginning of the year' could sharply increase the total loan volume."

The Financial Supervisory Service is reportedly considering re-implementing loan regulations on banks whose loan growth exceeds last year’s targets or shows an excessively high increase compared to other banks.

Alongside major commercial banks, the growth of internet-only banks is also drawing attention. Internet banks are quickly absorbing demand from younger customers who are more accustomed to non-face-to-face services and more active in debt investment.

The outstanding balance of credit loans for KakaoBank and K Bank, which was 5.4718 trillion KRW at the end of their first year in 2017, rapidly increased to 9.5013 trillion KRW at the end of 2018, 13.8823 trillion KRW at the end of 2019, and 18.8165 trillion KRW at the end of last year. This represents nearly a fourfold increase in three years.

In the case of KakaoBank, it resumed handling overdraft accounts for high-credit salaried workers on the 1st of this month, which had been suspended at the end of last year due to regulatory pressure from financial authorities. As a result, it is expected that, like other commercial banks, a large volume of credit loan demand has surged at the beginning of the year.

A banking sector official said, "As the trend toward non-face-to-face services continues to strengthen, demand is expected to continue to disperse toward internet banks, which have strengths in this area," adding, "Since younger customers tend to have a relatively weak concept of a main bank, internet banks’ share in the loan market is expected to increase."

It is anticipated that if the third internet-only bank, Toss Bank, launches in the second half of this year, the loan share of internet banks will expand even further.

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