Secondary Financial Sector Loans Surge by 33 Trillion Won... Financial Authorities Announce Plans to Strengthen Regulations (Comprehensive)

21.7 Trillion KRW Increase in the First Half of This Year... Twice Last Year's Net Increase
Analysis of the Balloon Effect of Loan Regulations Amid COVID-19 Financial Hardships

[Asia Economy Reporter Kim Jin-ho] It has been revealed that new loans issued by the secondary financial sector since COVID-19 have reached 33 trillion won. In particular, the amount surged to twice the total net increase of last year in just the first half of this year. This is attributed to a sharp rise in low-credit and low-income individuals pushed into financial hardship due to the prolonged COVID-19 pandemic, as well as a balloon effect caused by tightened bank loan regulations.

According to the Financial Supervisory Service and financial authorities on the 16th, the net increase in household loans from the secondary financial sector?including insurance, credit cards, and savings banks?reached 33 trillion won over the 18 months from January last year to the end of June this year.

Household loans in the secondary financial sector, which had decreased by 4.5 trillion won in 2019, continued to decline by 4.2 trillion won in the first half of last year. However, as COVID-19 became widespread in the second half of last year, loans sharply increased by 15.5 trillion won. In the first half of this year, the amount surged by 21.7 trillion won, twice the total net increase of the previous year.

The prolonged COVID-19 pandemic is analyzed as the biggest factor behind the rapid increase in secondary financial sector loans.

According to the credit rating agency NICE Information Service, the number of “multiple debtors” among self-employed individuals?those who borrowed money from three or more financial institutions?reached 1.26 million at the end of last year, increasing by more than 200,000 (19.2%) in one year. As COVID-19 continued, self-employed individuals struggling to get through each day turned to savings banks and credit card companies after being blocked by the high barriers to bank loans.

The “balloon effect” caused by financial authorities tightening bank loans to curb speculative investments such as “debt-financed investing” and “borrowing to the limit” is also cited as a factor. Amid the ongoing cryptocurrency frenzy, young people in their 20s and 30s have continued to invest by taking out high-interest loans from the secondary financial sector. In fact, household loans in the secondary financial sector increased by 21.7 trillion won in the first half of this year, a stark contrast to the 4.2 trillion won decrease during the same period last year.

Financial authorities, judging that the risk of household debt defaults in the secondary financial sector is high, have announced plans to strengthen regulations. Do Gyu-sang, Vice Chairman of the Financial Services Commission, warned at the “Household Debt Risk Meeting” yesterday, saying, “Risks are increasing mainly in the non-bank sector,” and “If the increase in household loans in the non-bank sector continues, we will promptly eliminate regulatory arbitrage with the banking sector.”

This message indicates that authorities will not tolerate the growing number of borrowers who, due to higher loan limits in the secondary financial sector compared to banks, take out loans from banks and then additionally borrow from savings banks or others within the Debt Service Ratio (DSR) standards. It is known that a plan to tighten the DSR for the secondary financial sector from the current 60% to 50% is under consideration.

Additionally, a new countercyclical capital buffer for the household sector will be introduced and implemented in the second half of this year, and the increase rate and risk level of household loans will be linked to a forecast fee, which may be increased by up to 10%.

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