Aftermath of Interest Rate Hike: "Loan Normalization Process" VS "Increased Anxiety Among Ordinary People"

Last-Minute Loan Rush Anxiety Drives 60% Surge in New Mortgage Credit Line Applications in One Week
Repayment Pressure and Loan Cliff Fears Cause Sighs Among Ordinary People
"Market Interest Rate Pre-Reflection Means Impact of Rate Hikes Is Not Severe," Some Say

Hana Bank announced that it will limit the personal credit loan ceiling to "within the range of individual annual income." The photo shows the Hana Bank headquarters branch in Jung-gu, Seoul, on the 27th. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Park Sun-mi] The aftershocks of the 0.25 percentage point base interest rate hike are sweeping fiercely. With the threshold for new mortgage loans raised, and interest rates and limits on general credit loans and overdraft accounts set to be simultaneously reduced, it is expected that real demand borrowers urgently needing funds will suffer significant damage. However, some predict that the impact will not be severe since interest rates remain at very low levels and the loan regulations were anticipated measures.

According to the financial sector on the 30th, KB Kookmin, Shinhan, and Woori Banks plan to implement measures in September to limit credit loan limits to within annual income. Among credit loans, overdraft accounts, which allow easy access to funds anytime, have had their loan limits reduced to 50 million KRW by Hana, Woori, and Shinhan Banks, with Kookmin Bank also planning to take the same action in September.

NH Nonghyup Bank, which received a 'warning' from financial authorities regarding household loan management before the interest rate hike, stopped issuing new mortgage loans from the 24th. Following the reduction of the maximum credit loan limit from 200 million KRW to below 100 million KRW and within 100% of annual income, Hana Bank also limited personal credit loan limits to within annual income starting from the 27th.

With the three measures of interest rate hikes, loan restrictions, and loan reductions occurring simultaneously, the credit loan balance of the five major commercial banks reached 140.8048 trillion KRW as of the 27th of August. This is at the level of late July when a loan boom occurred due to large public offering subscriptions, but the current strong trend of new overdraft account openings suggests it will increase further.

In particular, since overdraft accounts exceeding 50 million KRW will completely disappear from the five major banks next month, demand to secure them in advance has surged, with new overdraft account openings increasing by more than 60% in the past week. For example, at Bank A, the new overdraft amount surged more than double from 9.1 billion KRW at the beginning of this month to 19.7 billion KRW on the 27th. With speculative demand exploding before loan regulations fully take effect, a sharp increase in household loan scale in August is inevitable.

Increased Debt Repayment Burden Ahead of Moving Season... Concerns Over "Loans Not Being Approved"

In the market, there are concerns that the base interest rate hike and loan restrictions ahead of the full-fledged autumn moving season will block the financial lifeline of the vulnerable class struggling due to the spread of COVID-19, increasing anxiety among the lower-income population.

In fact, on real estate online communities, many posts mention that with the fourth quarter real estate balance payment date approaching, applying for loans now allows securing the lowest interest rates and the largest limits, prompting people to rush to submit documents. There are also many complaints about enduring both repayment pressure from the interest rate hike and anxiety over the possibility of loans not being approved.

However, there is also a view that the confusion will not be as severe as expected. This is because the current interest rate level is very low, and the financial authorities had already announced strengthening household loan volume management, so market interest rates have been pre-reflected.

Kim Su-jeong, Senior Researcher at Hana Financial Management Research Institute, predicted, "Despite regulatory tightening by policy authorities and interest rate hikes, if the rapid rise in housing prices continues or the increase in household debt does not slow down, there is a high possibility of an additional rate hike in November." She added, "However, market interest rates have already pre-reflected the 1.00~1.25% base rate, and due to adjustments in expectations about the pace of rate hikes and the US Federal Reserve's cautious normalization leading to external interest rate stability, the upward trend may weaken."

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