Bank Loans Tighten and Interest Rates Rise... Yeongkkeul and Debt Investment 'On the Edge'

Following NongHyup Bank, Woori and SC Jeil Bank Also Restrict Certain Household Loan Products

Household Loan Growth Rate

[Asia Economy Reporter Park Sun-mi] Following NH Nonghyup Bank's suspension of new mortgage loans, Woori Bank and SC First Bank have also restricted or halted the handling of certain household loan products. Along with this, interest rates on credit loans, including overdraft accounts that were previously easy to use, have soared, sharply increasing borrowers' interest burdens, signaling a potential end to the era of Yeongkkeul (borrowing to the limit) and Debt Investment (debt-financed investment).

Following Nonghyup, Woori and SC Also Restrict Some Loans

According to the financial sector on the 21st, Nonghyup Bank decided to suspend mortgage loans, including non-residential properties such as land and forest land, covering new loans, increases, and renewals, from the 24th until November 30th. Woori Bank also significantly restricted new Jeonse deposit loans.

Woori Bank sets quarterly limits on new Jeonse deposit loans and stops accepting new applications once the limit is exhausted. Due to the exhaustion of the third-quarter limit, new Jeonse deposit loan applications are restricted until the end of September. SC First Bank also stopped accepting new applications for the First Home Loan product linked to the new balance COFIX interest rate, which is one of its secured loans.

The expansion of household mortgage loan suspensions in the banking sector has led to complaints from real demand borrowers worried about funding difficulties. Bank branches have been flooded with inquiries about the suspension of mortgage loans. At Nonghyup Bank branches the previous day, most inquiries were about the deadline for loan applications, required documents, and procedures to prepare in advance for obtaining loans. Some also asked whether group loans for interim payments on new apartments fall under the full suspension scope.

Other banks faced similar situations.

Rumors circulated mainly on online communities that other banks' loans might soon face disruptions, leading to a flood of inquiries about possible future loan suspensions. Especially ahead of the autumn moving season, among people planning their funding, anxiety is spreading about the need to secure funds early due to consecutive loan regulations such as the suspension of loans by commercial banks, the application of a 40% Debt Service Ratio (DSR), increases in variable mortgage interest rates, reduction of preferential interest rate margins, and cuts in credit loan limits.

Overdraft Account Interest Rates Also Rising One After Another

With the Bank of Korea expected to raise the base interest rate as early as this month, borrowers' concerns are deepening.

The COFIX (Cost of Funds Index), which is used as a basis for calculating variable-rate mortgage interest rates, has risen again, leading major commercial banks to apply higher variable mortgage rates from the 18th. As of new loan handling, mortgage interest rates are 2.63%~4.13% at Kookmin Bank, 2.62%~3.63% at Woori Bank, and 2.71%~3.62% at Nonghyup Bank, up 0.03 percentage points compared to before the 18th.

Interest rates on credit loans, including overdraft accounts that were easy to use, have surged, sharply increasing interest burdens. The average overdraft interest rates handled by the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?in June ranged from 2.92% to 3.53% annually. Compared to 2.62% to 2.97% a year ago, this is an increase of about 0.6 percentage points. During the same period, internet bank KakaoBank's rates also rose by 1.14 percentage points annually. The rise in credit loan interest rates is due to banks adjusting total household loan volumes through preferential rate or limit reductions in response to regulatory orders, as well as the increase in the one-year bank bond rates that form the basis for interest rate calculations.

The problem is that although interest rate hikes should reduce loan demand, the number of borrowers taking on debt is increasing, further burdening ordinary citizens with debt. The Yeongkkeul and Debt Investment craze in the real estate and stock markets, especially among younger generations, has not subsided, and the prolonged COVID-19 pandemic has made it difficult for many to repay existing debts due to tightened household finances.

According to the Financial Services Commission, net household loan increases across the entire financial sector reached 78.8 trillion KRW from January to July this year. This is a surge of 32.9 trillion KRW (71.6%) compared to 45.9 trillion KRW during the same period last year. It is 3.3 times the increase of 23.7 trillion KRW recorded from January to July 2019, before the COVID-19 outbreak.

Park Sung-jin, Deputy Head of the Market General Team at the Bank of Korea's Financial Market Department, stated, "Because there is still strong demand for funds related to housing sales, Jeonse deposits, other loans for risky asset investments such as stocks, and COVID-19 related living and business funds, it will be difficult for the growth rate of household loans to slow significantly."

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