Bank Household Loans Stall While SME Loans Continue to Surge (Comprehensive)

Corporate loans at the end of June total 524.3904 trillion won... Increased by 3.1248 trillion won in one month
Household loans increased by only 1.2996 trillion won

[Asia Economy Reporters Sunmi Park, Kiho Sung] As pressure to manage household debt intensifies, banks are focusing on corporate loans instead of household loans, which are difficult to increase further, leading to a surge in loans to small and medium-sized enterprises (SMEs).

According to the financial sector on the 2nd, the outstanding SME loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?as of the end of June amounted to 524.3904 trillion won, an increase of 3.1248 trillion won from 521.2655 trillion won at the end of May.

All four major banks except Nonghyup Bank significantly increased their SME loans. In particular, while Shinhan Bank’s mortgage loans and credit loans increased by only 3.8 billion won and 5.1 billion won respectively, its SME loans rose by 1.5701 trillion won, showing the largest increase in SME loans among commercial banks.

SME loans at the five major banks have continued to surge, maintaining a monthly increase of between 3 trillion and 6 trillion won this year, driven by funding demand due to COVID-19.

This shift is due to banks finding it difficult to actively increase household loans as the government and financial authorities intensify pressure to manage household debt. The growing importance of Environmental, Social, and Governance (ESG) management has also influenced banks to recognize supporting SMEs facing management difficulties as a social responsibility.

Household loans in June increased compared to May, when they decreased for the first time in four years and three months, but the increase was small, indicating a clear slowdown.

Last month, the outstanding household loans at the five major banks amounted to 689.1073 trillion won, an increase of only 1.2996 trillion won from 687.8076 trillion won a month earlier. The two main pillars of household loans, personal credit loans, stood at 139.0294 trillion won, increasing by only 53.82 billion won from the previous month, and mortgage loans rose by 65.17 billion won to 485.7599 trillion won. This completely contradicted market expectations that there would be a last-minute surge in household loans ahead of the implementation of the new household debt management plan on the 1st of this month, which expands the application of the Debt Service Ratio (DSR) 40% rule to lend only as much as borrowers can repay.

Strengthened Household Loan Regulations from July... Household Loans Slow Down, SME Loans Expected to Continue Surging

From July, in regulated areas such as Seoul, the DSR 40% rule applies when taking out mortgage loans on houses priced over 600 million won or credit loans over 100 million won.

From July next year, the DSR regulation will apply when the total loan amount exceeds 200 million won, and from July 2023, it will apply for loans over 100 million won. Additionally, the Loan-to-Value (LTV) preferential rate for mortgage loans taken by non-homeowners will increase by up to 20 percentage points, 10 percentage points more than before. For non-homeowners, the house price criteria for LTV preferential benefits will be relaxed from 600 million won to 900 million won (from 500 million won to 800 million won in regulated areas), and the income criteria will be expanded from a combined 80 million won for couples to 90 million won (from 90 million won to 100 million won for first-time homebuyers). Young people and newlyweds can use policy mortgages with a 40-year maturity.

As banks enter a permanent household loan management system by reducing preferential interest rates or discontinuing some loan products, it is becoming difficult to see a surge in household debt, while voices are growing that SME loans will maintain their current growth for the time being. Financial Services Commission Chairman Eun Sung-soo emphasized to bank CEOs yesterday, "In a low-interest-rate environment, it is necessary to manage interest rate rise risks, and meticulous household debt management is required in the second half of the year," adding, "I strongly urge minimizing unnecessary household loan issuance."

However, concerns are growing that the rapid increase in SME loans could become a financial risk trigger, as nearly half of SMEs cannot even pay annual interest from their earnings, Bank of Korea Governor Lee Ju-yeol has set the timing for base rate hikes within this year, and COVID-19 financial support is scheduled to end in September.

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