Total Household Loan Limit for Savings Banks Set at '21%'... Multiple Exceeding Companies in the First Half of the Year

20% of Savings Banks Exceed Household Loan Total Limit
Industry: "Loan Suspension Not Allowed, Existing Loans to Be Restructured"
Likely to Curb Maturity Extensions and Raise Screening Standards
Financial Authorities: "Special Management for Firms with Rapid Growth"

[Asia Economy Reporter Song Seung-seop] Savings banks are increasingly exceeding their annual total loan limits. Household loans have surged by more than 21% in just half a year, triggering alarms over debt management. To meet the baseline standards required by authorities, savings banks are raising loan thresholds and rejecting maturity extension requests, raising concerns that the loan cliff could deepen in the secondary financial sector following the banks.

According to the industry on the 24th, out of 79 savings banks, 18 had exceeded their total loan limits as of June. This accounts for 22.7% of the total. There were also 12 savings banks where loans increased by more than 10.5%, which is half of the total limit. The market analysis suggests that more savings banks will face difficulties managing total loan volumes in the second half of the year amid continued loan demand.

At the beginning of this year, financial authorities recommended that savings banks keep the growth rate of total household loans, including mid-interest rate loans, to 21%. Documents sent to individual companies through the Korea Federation of Savings Banks required them to report past loan performance, business plans, and future loan management measures. At that time, savings banks also submitted responses on how they would handle exceeding balance and target goals by product.

The steepest increase was seen at Central Savings Bank, based in the Honam region. Its household loan balance in the second quarter was 8.1 billion KRW, an 84% surge compared to the end of the previous year. Following closely was Daesin Savings Bank with a loan growth rate of 78.8%. Considering this growth trend, it is expected to be difficult to comply with the total volume regulations required by authorities.

Notably, financial holding company affiliates such as KB Savings Bank (41.9%), Shinhan Savings Bank (26.8%), NH Savings Bank (23.3%), and BNK Savings Bank (36.3%) showed prominent growth. These holding company-affiliated savings banks actively supplied mid-interest rate loans in the first half of the year through linked operations with commercial banks.

Looking at the entire sector, the total loan amount increased by 12.4% (4.2013 trillion KRW) from 33.7649 trillion KRW at the end of the year to 37.9662 trillion KRW. This was influenced by a series of losses recorded by small regional savings banks.

Industry to Temporarily Restrain New Loan Inflows... "Sell Bonds and Tighten Screening"

The savings bank industry intends to continue accepting new loan applications for the time being. A unilateral suspension of loans would completely block customer inflows, causing significant damage. They could also face criticism for neglecting the supply of financial services to ordinary citizens, such as mid-interest rate loans.

Instead, the strategy has been revised to significantly clean up existing loans while minimizing new loan inflows. This is why warnings are emerging that the raised loan thresholds at savings banks, which have competitiveness in interest rates and products, could ultimately make it difficult for genuine borrowers to obtain funds.

A representative from a savings bank that has already exceeded the total loan limit explained, "We have decided to sell off as many delinquent loan receivables as possible and to reject maturity extension requests as much as possible." Another savings bank official said, "New loans will be limited to mid-interest rate loans, which have relatively ample limits within the 21% cap," adding, "By raising screening standards, many applicants may be rejected in the second half of the year."

Financial authorities plan to manage savings banks with excessively rapid loan growth. A Financial Supervisory Service official said, "Some banks executed a large volume of household loans before the announcement of management plans and are under special management," adding, "We have notified several companies that they should not treat the current situation as a business opportunity."

However, the official drew a line against industry demands to ease loan limits. "The overall household loan growth rate of savings banks slowed down in August and September," he said, "The government and financial authorities are strongly managing debt, so it is difficult to consider regulatory easing."

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