Drying Up as a Commoner's Quick Loan Window... Savings Banks with Increased Loans Face Higher Thresholds (Comprehensive)

Top 5 Savings Banks' Loan Balances in H1 Reach 32.2819 Trillion KRW
8% Surge in One Quarter... Twice as Steep as Previous Quarter
Rapid Growth Especially in COVID-19 Vulnerable Sectors
Rising Loan Thresholds and Interest Rate Hikes Increase Borrower Burden

[Asia Economy Reporter Song Seung-seop] Despite government and financial authorities' financial support policies, the number of small business owners turning to savings banks has significantly increased this year. This is interpreted as part of a 'balloon effect,' where the tightening of loan regulations raises the threshold at commercial banks, pushing borrowers toward secondary financial institutions. However, given that secondary financial institutions are mainly used by medium- and low-credit borrowers, there are concerns that additional regulations and base rate hikes by authorities will increase the burden on vulnerable borrowers and make borrowing even more difficult.

According to the industry on the 1st, the loan balance of the five major savings banks?SBI, OK, Welcome, Pepper, and Korea Investment?reached 32.2819 trillion KRW in the first half of this year. This is an increase of 2.4981 trillion KRW (8.3%) from 29.7838 trillion KRW in March. Considering that the loan increase in the previous quarter was 1.3723 trillion KRW (4.8%), the growth rate has doubled. This is the first time in the past year that the loan balance has increased by more than 8% in just one quarter.

By industry, loan growth was particularly notable in sectors vulnerable to COVID-19. Loans to wholesale and retail businesses increased across all savings banks. They grew by 236.6 billion KRW (13.6%) over six months, reaching 1.9673 trillion KRW. Welcome Savings Bank and Korea Investment Savings Bank saw growth rates of 30.1% and 35.2%, respectively. At OK Savings Bank, loans to small and medium enterprises classified under food and beverage businesses increased from 240.8 billion KRW to 243.3 billion KRW, while at Welcome Savings Bank, loans to the service sector grew from 142 billion KRW to 153.2 billion KRW.

Due to high interest rates, comprehensive account loans (overdraft accounts), which are usually not popular at savings banks, also expanded rapidly. Except for Pepper Savings Bank and Korea Investment Savings Bank, comprehensive account loans have annual interest rates that reach the maximum legal limit. Most have a maturity of one year, which is short. The scale of overdraft loans handled by the five savings banks reached 2.3876 trillion KRW, increasing by 49.57% (791.2 billion KRW) in half a year.

The scale of non-performing loans also rises... borrowing will become more difficult

Loans that are virtually unrecoverable also increased. The representative non-performing indicator, 'fixed and below non-performing loans,' rose by 14.2% over one year to 1.295 trillion KRW. 'Non-performing loans,' which combine doubtful and estimated loss loans, increased by 20.67% to 950.3 billion KRW. This disclosure does not reflect loan maturity extensions and interest payment deferrals, so the actual scale is expected to be even larger.

So far, the government and financial authorities have invested finances to support small business owners and vulnerable industries. The Ministry of SMEs and Startups announced an integrated support project for small business owners worth a record 4.2 trillion KRW at the end of last year, and Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki announced customized support worth 9.3 trillion KRW for small business owners affected by COVID-19 and vulnerable employment groups. Nevertheless, as COVID-19 cases have not decreased and Level 4 social distancing has continued for a long time, financially vulnerable groups have significantly increased their debt in secondary financial institutions.

However, borrowing will become more difficult even in secondary financial institutions. The household loan management policy, which started earlier this year, has been strengthened, and some regulations are uniformly applied to secondary financial institutions. Financial authorities recommended that the total household loan growth rate of savings banks be limited to 21% compared to last year, but many have already reached 80-90% of this target. Recently, recommendations were made to the Credit Finance Association and the Korea Federation of Savings Banks to operate unsecured loan limits within annual income, the same as commercial banks. Accordingly, the Bank of Korea predicted that the lending attitude of savings banks would drop sharply from +3 in the first quarter to -12 in the third quarter, significantly raising the borrowing threshold.

The interest burden is also expected to increase due to the base rate hike. Last month, the Bank of Korea raised the base rate by 0.25 percentage points from 0.5% to 0.75%. According to data submitted by the Bank of Korea to the National Assembly in May, a 1 percentage point increase in household loan interest rates would increase household interest burdens by 11.8 trillion KRW.

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