Banks Reduce Loan Limits and Adjust Preferential Interest Rates... Concerns Over Accelerated Loan Crisis

Bank Credit Loan Limits Reduced to 'Within Annual Income Range'
Preferential Interest Rates on Mortgage Loan Products Also Lowered

[Asia Economy Reporter Park Sun-mi] As people rush to secure loans before the 0.25 percentage point base interest rate hike is applied to loan interest rates, banks are strengthening limit management by reducing loan limits and lowering preferential interest rates. With the ‘balloon effect’ caused by NH Nonghyup Bank’s suspension of new mortgage loans, more banks have already reached their loan limits, raising concerns that the loan crisis will worsen.

According to the financial industry on the 27th, Hana Bank decided to limit personal credit loan limits to ‘within the individual’s annual income’ starting today. The overdraft loan limits, which varied by product, will also be reduced to a maximum of 50 million KRW per person. The new measures apply to new loans, refinancing, renewal, and increase cases. They do not apply to extensions of existing loans.

Hana Bank has not set a deadline for this measure. While it reflects the Financial Supervisory Service’s recent request to the financial sector to reduce credit loan limits to within annual income levels, it is mainly a loan limit management plan to prepare for the balloon effect caused by increased demand due to the chain reduction of credit loan limits by banks and the surge in speculative demand.

The industry views the recent base interest rate hike by the Bank of Korea as having ignited concerns over loan limit reductions and rising loan interest rates at commercial banks. Although the first base rate hike has already been pre-reflected in the loan interest rates currently applied by banks, since this is just the first step of the base rate hike, if further increases are considered, loan interest rates will inevitably continue to rise, accelerating the atmosphere among financial consumers to secure loans in advance.

A representative from a commercial bank said, "There are talks that the base interest rate hike is not a one-time event but just the beginning, so many people want to take out loans now before banks raise loan interest rates further." He added, "With some banks already stopping new loans, excessive demand for loans is overflowing, and the chain reduction of loan limits and downward adjustment of preferential interest rates in the banking sector may continue."

In fact, the loan limit exhaustion phenomenon is already appearing in the banking sector. Although more than a month remains until the end of the third quarter, Woori Bank, which has already met its mortgage loan target, allocated an additional 200 billion KRW in apartment mortgage loan limits available for execution in the third quarter as of the previous day.

The bank has already notified each branch of this matter. Woori Bank, which manages loans by setting quarterly limits, stated, "We first allocated an additional 200 billion KRW and will continue to monitor the loan exhaustion situation." They added, "We judged that this amount would be sufficient until the third quarter, but if the exhaustion rate approaches 100% again, we are open to additional allocations."

Starting next month on the 1st, Woori Bank will also lower the maximum preferential interest rate for mortgage loan products by 0.3 percentage points. For jeonse (key money deposit) loan products, the number of preferential interest rate items will be reduced. Additionally, from next month, household credit loan limits will also be reduced to within annual income.

Earlier, NH Nonghyup Bank, which received warnings from authorities due to household loan growth exceeding targets, suspended new mortgage loan issuance until the end of November and reduced the maximum limit for new credit loans from 200 million KRW to below 100 million KRW, capped at 100% of annual income. SC First Bank also suspended some mortgage loan issuance.

Meanwhile, the banking industry expects that with this base interest rate hike, if deposit product interest rates such as savings and time deposits rise around September, the COFIX, which serves as the benchmark for variable mortgage loan rates, will increase around October, potentially leading to further increases in mortgage loan rates in the banking sector. A bank official said, "The base interest rate hike is immediately stimulating consumers’ psychology predicting loan interest rate increases," adding, "For credit loans as well, many people will likely choose 12-month variable interest rates considering further base rate hikes."

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