2,000 Daily Openings of Overdraft Accounts... "Use 50% to Maintain the Limit" (Comprehensive)

Commercial Banks Reduce Credit Line Limits with Low Utilization Rates
Kookmin Bank Cuts Limit by 20% on Extensions if Average Usage Below 10%
"However, No Reduction if Loan Amount Exceeds 50% of Contracted Amount on Extension Date"

[Asia Economy Reporter Park Sun-mi] Choi Seung-mi (41, pseudonym), who holds a KB Kookmin Bank overdraft account (Ma-tong), received a notice ahead of the loan maturity date at the end of this month stating that "if the overdraft account is opened but not used, the limit will be reduced by 20% upon extension." However, if the loan amount exceeds 50% of the limit, the extension can be made without reducing the limit. Although Choi did not need money immediately, she applied for a loan to pay interest and maintain the limit in preparation for urgent funds in the future.

Due to pressure from financial authorities to manage household loans, commercial banks are reducing overdraft limits with low utilization rates, leading to a surge in cases where unnecessary loans are taken out to maintain limits. Because of the clause requiring a certain usage rate of the overdraft, and amid an atmosphere of tightening loans across the board, it is expected that the number of consumers who opened new accounts with the mindset of "just open it first" before regulations will increase loans to maintain limits in the future.

According to the banking sector on the 24th, among the four major banks?Kookmin, Shinhan, Hana, and Woori?Kookmin and Hana Bank specify conditions for maintaining limits when extending overdraft periods. Kookmin Bank's overdraft special clause states that if the average utilization rate of the loan limit for the three months before the overdraft maturity date is 10% or less, the loan limit will be reduced by 20% of the agreed loan amount before extending the period. However, if the loan balance as of the extension date exceeds 50% of the agreed amount, the extension can be made without reduction.

Hana Bank also notifies customers using the Hana One Q overdraft, known as the "cup noodle loan," that during the loan extension review, the limit may be reduced by up to 50% depending on usage performance, or the entire limit may be reduced if the limit is unused during the loan period.

In fact, customers who have not used the full limit until the overdraft maturity date see their extension loan limit cut in half compared to the limit they had a year ago. A customer using Hana One Q said, "There is a risk of having to immediately repay the loan amount reduced by the decreased limit," adding, "To maintain the existing limit, I have to temporarily take out a loan up to the overdraft limit and repay it a few days later."

Other banks do not explicitly state in their loan terms or review criteria how much of the overdraft limit must be used to avoid limit reduction upon extension. However, as pressure from financial authorities to manage household loans increases, branches inform customers with low utilization rates during overdraft extension reviews that there may be disadvantages such as limit reductions, or encourage limit utilization.

"Disadvantages on extension if loan limit is not utilized"

One customer said, "There is strong demand to open overdraft accounts in preparation for sudden financial needs, but when they are informed that the limit will be reduced if the utilization rate is low at extension, customers have no choice but to temporarily take unnecessary loans to increase the limit," adding, "The guidance that not using the loan limit results in disadvantages upon extension feels like an unfair loan inducement."

Recently, amid the enthusiasm for stock and real estate investment and the strengthening of household loan management by financial authorities, consumers have come to perceive overdraft accounts as accounts that must be opened with the maximum limit possible when available. The number of new overdraft accounts opened daily at the five major banks currently exceeds 2,000. In particular, on the 10th, the subscription deadline for SK Bioscience's public offering, the number of new overdraft accounts opened at the five major banks exceeded 2,500, about 10% higher than usual. As of the 19th, the overdraft balance at the five major banks reached 46.4464 trillion KRW.

The financial authorities plan to announce household debt management measures next month after comprehensively considering the first quarter household loan trends. A bank official explained, "While there is a movement to reduce overdraft limits from the perspective of strengthening household loan management, banks incur costs because they have to set aside reserves for the amount of overdraft limits extended by customers," adding, "Therefore, banks have no choice but to encourage customers who open overdraft limits but do not use them."

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