5 Major Bank Presidents "Focus on Household Loan Management Amid COVID Resurgence and Interest Rate Hikes"

Base Interest Rate Expected to Rise by 0.25%p in Second Half
COVID-19 4th Wave Remains a Variable

[Asia Economy Reporter Park Sun-mi] The heads of South Korea's five major commercial banks identified managing the risk of non-performing loans due to the resurgence of COVID-19 as one of their top priorities for the second half of this year. Although the timing may be delayed due to the fourth wave caused by the spread of the Delta variant, if combined with an increase in the base interest rate, vulnerable groups may face difficulties in repaying their debts, leading to a rapid rise in non-performing loans.

On the 14th, Asia Economy conducted a survey of the heads of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?regarding their outlook on the financial market and management strategies for the second half of the year. The bank heads unanimously agreed that they must prepare in advance for risk management in response to the shock from the resurgence of COVID-19.

Accordingly, their strategy is to operate loans on a two-track basis, dividing them into household and corporate sectors. For household loans, since the household debt management plan, which includes the core regulation of a 40% debt service ratio (DSR) per borrower, has been applied starting this month, they plan to adjust more conservatively. Financial authorities aim to suppress the annual household debt growth rate to around 5-6%. On the other hand, there is a common stance to expand support for small and medium-sized enterprises (SMEs) that are struggling to secure funding due to COVID-19.

Park Sung-ho, CEO of Hana Bank, said, "If interest rates rise amid the COVID-19 situation, the risk of non-performing loans will increase mainly among multiple debtors within household credit loans." He added, "We will check the principal and interest repayment ability of borrowers who are significantly affected by the interest rate hike and continuously manage the inflow of high-risk borrower groups." Kwon Kwang-seok, CEO of Woori Bank, also stated, "We will strengthen risk management for loans that are expected to become non-performing in preparation for the realization of potential non-performing loans related to COVID-19."

Meanwhile, the heads of the five major banks commonly emphasized the likelihood of at least one 0.25 percentage point interest rate hike in the second half of the year if the COVID-19 spread subsides. When the Bank of Korea raises the base interest rate, banks typically preemptively raise their lending and deposit rates and respond accordingly.

The bank heads viewed a high possibility that the base interest rate, currently at 0.5%, could rise to 1% through one or two rate hikes by next year. However, they cited the resurgence of COVID-19 as a variable that could delay the decision to raise rates. With the number of new domestic confirmed cases exceeding 1,400, breaking records, and other countries with high vaccination rates also showing signs of resurgence, the actions of global central banks, including the U.S. Federal Reserve (Fed), have become more flexible.

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