Will Loan Thresholds Rise for Low-Credit Borrowers? Financial Authorities Urge Slower Pace on Card Loans

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] Financial authorities have urged the card industry to manage the total volume of loans, including card loans (long-term card loans), as part of household loan management. Since the use of card loans has surged since last year, and the main users are middle- to low-credit borrowers and multiple debtors, card loans are seen as a potential risk factor for future defaults, prompting authorities to step up management.

According to the industry on the 6th, financial authorities have reportedly conveyed verbally to the card industry that speed control is necessary regarding the recently increasing card loans.

The card loan balance, which hit an all-time high last year, continues to increase in the first quarter of this year. According to the Financial Supervisory Service's Financial Statistics Information System, the card loan balance of seven specialized card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) in the first quarter of this year was 33.1787 trillion KRW, an increase of about 9.5% (2.874 trillion KRW) compared to the same period last year (30.3047 trillion KRW). This is also a 3.5% (1.1323 trillion KRW) increase from the fourth quarter of last year (32.0464 trillion KRW).

Earlier, financial authorities announced that household debt would be managed at around 5-6% this year. It is reported that card companies were asked to collect this year's household loan targets around the end of May, but specific timing or growth rates related to total volume management have not yet been decided.

Meanwhile, concerns have been raised that the exclusion of card loans (long-term card loans) from the borrower-level Debt Service Ratio (DSR), which has been implemented since this month, could lead to a balloon effect. It is expected that demand for card loans, which are not included in the DSR, will increase if additional funds are needed. However, as requested by the authorities, card companies are also expected to manage the total loan volume within the 5-6% range.

However, the loan threshold for low-credit borrowers is expected to rise further. This is because the legal maximum interest rate will be lowered from 24% to 20% starting from the 7th, coinciding with card companies' management of card loans. Due to the reduction in the maximum interest rate, it is expected that demand for loans from low-credit borrowers will decrease, and card companies will target high-credit borrowers, making it more difficult for low-credit borrowers to obtain loans.

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