Will There Be a Rush Before Regulations...? "Concerns Over a Last-Minute Bang for July"

"Get More Before Loans Are Blocked"
Increase in Customer Inquiries About Loan Limits

[Asia Economy Reporters Sunmi Park, Hyojin Kim] "I think I need to apply for an additional unsecured loan. I don't have immediate plans to use a large sum, but since I might need it for future stock or real estate investments, I should get more before loans get restricted." (Post by Mr. A on an online community)

"We expect a temporary increase in household loans as 'last-chance' customers rush to secure loans before the regulations take effect." (Employee at B Bank Jung-gu Branch)

Despite financial authorities' explanation that the household debt regulations effective from July will not significantly affect loan limits for genuine borrowers, concerns are growing that there will be a surge in debt-financed investments (debt investment) and all-in borrowing (pulling together all resources) before the implementation.

On the 30th, questions about changes in loan limits following the announced household debt management measures and concerns about a rush in loan demand before the new regulations take effect in July flooded commercial bank branches and investment-related online communities.

The Financial Services Commission judged that there would be no market disruption due to this announcement. A Financial Services Commission official emphasized, "More than 90% of borrowers will not feel any change immediately." However, financial consumers, who have recently used speculative loans for real estate and stock investments through debt investment and all-in borrowing, interpret this as a "strong signal to tighten loans" and are preparing to respond accordingly.

Concerns Over Reduced Loan Limits After Household Debt Management Measures Announcement
Worries About Increased Debt Repayment Burden

With loan demand having increased due to COVID-19, concerns that borrowing money will become more difficult are expected to lead to demand for loans before the regulations take effect. When financial authorities announced credit loan regulations in November last year, other loans such as unsecured loans at banks surged to record levels, and at the beginning of this year, fears of additional high-value unsecured loan regulations caused a sharp increase in the issuance of overdraft accounts as a side effect.

In fact, at commercial bank branches, inquiries from customers who understand the household debt management measures as a government plan to reduce loan limits and want to secure loans in advance are pouring in. An employee at C Bank Jung-gu branch said, "Demand to create funds through unsecured loans before the regulations take effect is expected to increase significantly starting next month," adding, "There has been a noticeable increase in related inquiries immediately after the government announcement."

There are also concerns that the overall loan approval threshold in the banking sector will rise. The background of the household debt management measures includes the goal of reducing the household debt growth rate, which was 8%, to 5-6% this year and to 4% next year. In other words, to keep the loan growth rate moderate, it is interpreted that banks will inevitably raise the loan approval bar.

A representative from D Bank Yeouido branch said, "The goal is to reduce the growth rate to about half of last year's level, so loan screening at the frontline will inevitably become stricter," and predicted, "Measures such as reducing or abolishing preferential interest rates, raising interest rates, and suspending the sale of some loan products, which have continued since last year, are likely to become stronger and more permanent."

Concerns are also raised that it will become more difficult for low-income households to obtain loans to buy homes, as the DSR 40% application target expands from houses priced over 900 million KRW to those over 600 million KRW. An employee at E Bank Mapo branch advised, "Due to the spread of COVID-19, many low-income people use overdraft accounts, and if they want to get a loan to purchase a house priced over 600 million KRW while having existing loans, there will be restrictions on the loan limit, which may lead some to advance their payment schedule and secure loans before July."

There are also criticisms that banks' burden to accumulate buffer capital has increased. The banking industry views the obligation to accumulate additional capital proportional to the share of household loans in total loans as a potential long-term new burden. Considering that household loans account for about 60% of total loans at commercial banks, it is highly likely that an additional capital charge of around 1.5 percentage points will be imposed.

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