'Total Limit Exceeded'... Savings Banks "Clearing Existing Loans and Tightening Loan Screening" (Comprehensive)

20% of Savings Banks Exceed Household Loan Total Limit
Industry: "Loan Suspension Not Allowed, Existing Loans to Be Restructured"
Likely to Curtail 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, raising alarms over debt management. To meet the baseline standards required by authorities, savings banks are raising loan thresholds and rejecting maturity extension requests, sparking 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. Additionally, 12 savings banks saw loans increase by more than 10.5%, which is half of the total limit. 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, at 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 cases where balances and targets by product were exceeded.

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 Daeshin Savings Bank, with a loan growth rate of 78.8%. Considering this growth trend, it is expected that complying with the total volume regulations demanded by authorities will be difficult.

Notably, financial holding company-affiliated savings banks 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 maintains that it cannot completely stop accepting new loans. A unilateral halt in lending would completely block customer inflows, causing significant damage. There is also the risk of criticism for neglecting the supply of financial services to ordinary citizens, such as mid-interest rate loans. However, leaving the situation unchecked could be perceived as non-cooperation with the financial authorities’ strong household loan management policy.

Accordingly, savings banks have revised their strategy to significantly clean up existing loans while minimizing new loan inflows. This has raised warnings that the loan thresholds at savings banks, which are competitive in terms of interest rates and products, are rising, making it difficult for genuine borrowers to obtain funds. A representative from a savings bank that has already exceeded its total loan limit said, "We have decided to sell as many delinquent loan bonds as possible and to reject maturity extension requests as much as possible."

Some companies said they would only handle mid-interest rate loans targeted at medium-credit borrowers even if they issue new loans. Among total household loans, mid-interest rate products and policy financial products (such as Saessal Loan and Saetdol Loan) should be managed with a growth rate around 15%. For savings banks, focusing on mid-interest rate loans is advantageous, but low-credit borrowers are more likely to be rejected. Another savings bank official said, "We will only accept a small amount of new loans for mid-interest rate products, which have relatively ample limits," 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 management plan announcement, so they are under special management," and added, "We continuously monitor and, if necessary, directly hear detailed explanations from responsible personnel." The official also hinted, "We have notified some companies that they should not treat the current situation as a business opportunity."

However, the authorities drew a line on industry demands to ease loan limits. Since debt management must be prioritized at this time, it is considered premature. The official said, "The overall household loan growth of savings banks slowed down in August and September," and added, "The government and financial authorities are strongly managing debt, so it is difficult to consider easing regulations."

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