Aftershock of Base Rate Hike... Concerns Over Accelerated Loan Crisis (Comprehensive)

Banks Reducing Loan Limits and Adjusting Preferential Interest Rates

[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 loan 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. This new measure applies to new loans, refinancing, renewal, and increase cases. It does 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 financial institutions to reduce credit loan limits to within annual income, it is mainly a loan limit management plan to prepare for the balloon effect caused by the surge in demand due to the chain reduction of credit loan limits by banks and the rapid increase 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 loan interest rate increases 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, if further hikes are considered, loan interest rates will inevitably continue to rise, likely accelerating the atmosphere among financial consumers to take out loans in advance.

An official from a commercial bank said, "There is talk that the base rate hike is not a one-time event but just the beginning, so many people want to secure loans now before banks raise loan interest rates further," adding, "With some banks already halting 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."

Red Light on Bank Loan Limits... Adjustments to Loan Limits and Preferential Interest Rates

In fact, the banking sector is already experiencing loan limit exhaustion. 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 to the apartment mortgage loan limit 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," adding, "We believe this amount will cover 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. The maximum preferential rate for 'Woori Apartment Loan' will decrease from 0.8% to 0.5%, and for 'Woori Real Estate Loan' from 0.6% to 0.3%. The preferential interest rate items for jeonse (lease deposit) loan products will also be reduced. Additionally, from next month, household credit loan limits will be reduced to within annual income.

Earlier, NH Nonghyup Bank, which received a warning from authorities for exceeding the household loan growth target, 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 rate hike, deposit product rates such as savings and time deposits will rise around September, leading to an increase in the COFIX rate, which serves as the benchmark for variable-rate mortgage loans, around October, potentially causing further increases in mortgage loan interest rates. A bank official said, "The base rate hike has immediately stimulated consumers' psychology anticipating loan interest rate increases," adding, "For credit loans as well, many people will likely choose 12-month variable rates considering further base rate hikes."

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