Major Banks Drastically Cut Credit Line Issuance...Stronger Regulations Expected in Second Half (Comprehensive)

Over Half a Million Credit Line Accounts Halved in Six Months... 52,812 Cases in June, Down 53.4% from January
Authorities Focus on Managing Household Loans, Banks Mainly Cut Credit Lines

[Asia Economy Reporter Kwangho Lee] Last month, the number of newly opened bank overdraft accounts (negative balance accounts) dropped by half compared to the beginning of the year. This is because financial authorities have strengthened household loan management, leading commercial banks to focus on tightening overdraft accounts, which are more likely to be used as a means of raising funds for stock and real estate investments rather than for actual demand funds. Banks that have already halved the maximum overdraft limit and raised interest rates are expected to tighten restrictions even further in the second half of the year, making it more difficult to obtain overdraft accounts.

According to the financial sector on the 5th, the number of overdraft accounts opened in June at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 52,812, a sharp decrease of 53.4% compared to January (113,363). It also fell 15.5% compared to the previous month (62,571).

By bank, KB Kookmin Bank’s overdraft account openings notably declined. Compared to the previous month, KB Kookmin Bank decreased by 21.9%, while Shinhan Bank and Woori Bank also shrank by 16.5% and 6.3%, respectively.

Heads of Financial Authorities Also Order Household Loan Management

This trend is due to financial authorities focusing on managing overdraft loans. At the beginning of this year, financial authorities instructed banks to keep the household loan growth rate within the 5% range. Next year, they plan to reduce it to the 4% range, which is the level before the COVID-19 pandemic.

A financial authority official said, "We have set the increase in unsecured loans at around 2 trillion won per month and are focusing on managing the total volume of unsecured loans across the banking sector. Overdraft accounts are being closely monitored because they are more likely to be used as a means of raising funds for stock and real estate investments rather than for actual demand funds."

Heads of financial authorities have also consecutively ordered management of household loans.

On the 1st, Eun Sung-soo, Chairman of the Financial Services Commission, met with bank presidents and requested, "Please minimize the handling of unnecessary household loans." On the 2nd, Do Kyu-sang, Vice Chairman of the Financial Services Commission, emphasized at the Financial Risk Response Team meeting, "Signals indicating an imminent interest rate hike are appearing everywhere. It is a time when risk management and proactive preparation for the possibility of rising interest rates are necessary." On the same day, Kim Geun-ik, Acting Governor of the Financial Supervisory Service, visited financial institutions’ business sites and said, "Household loans, which surged since the second half of last year, have stabilized. Please manage them meticulously to prepare for future changes in the financial situation."

Closely Monitoring Household Loans... Continuous Review of Additional Measures

Accordingly, banks have actively reduced limits and raised interest rates, focusing on overdraft accounts as an effective means to control household loan growth.

Since May, Shinhan Bank has been reducing the limit by up to 20% when extending overdraft accounts with limits exceeding 30 million won if the usage rate is less than 10% three months before maturity. For example, if an overdraft account with a 50 million won limit has been used less than 5 million won (10%), the limit may be reduced to 40 million won upon product extension or renewal. In February, Shinhan Bank lowered the maximum overdraft limit for the "Sol Pyeonhan" salaried worker credit loan and the public servant credit loan from 100 million won to 50 million won. It also requires head office review if the debt service ratio (DSR) exceeds 40%.

Woori Bank also reduced the maximum overdraft limit to 50 million won for major unsecured loans such as the Woori Main Transaction Salaried Worker Loan. Since April, if less than 10% of an overdraft account exceeding 20 million won is used, the limit is reduced by 10% upon extension or renewal. If less than 5% is used, the limit is reduced by 20%.

KB Kookmin Bank reduced the limit by 20% for overdraft accounts exceeding 20 million won with an average loan limit utilization rate below 10% three months before maturity in the second half of last year. Hana Bank notified customers that it may reduce the overdraft limit by up to 50% if usage is low for its non-face-to-face credit loan product, Hana OneQ Credit Loan.

Additionally, Suhyup Bank completely stopped new overdraft loans for its Sh The Dream Credit Loan product targeting salaried workers. Internet-only bank K Bank raised the interest rate on overdraft loans for salaried workers by 0.1 percentage points, increasing the minimum rate to 3.0% per annum.

A bank official said, "Due to the financial authorities’ total volume management of household loans, it will be difficult to obtain overdraft and other unsecured loans throughout this year. We plan to closely monitor household loan growth trends and continuously review additional measures."

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