5~6% Approaching... Banks Tighten Loans Further

Banks Temporarily Suspend Loans One After Another
Authorities Announce Strong Measures Early Next Month
Concerns Raised Over Impact on Genuine Borrowers

[Asia Economy Reporter Kiho Sung] Major banks are accelerating their tightening of loan regulations. This is because the household loan growth rate has approached the financial authorities' loan management target of 5-6% annually for this year. Banks are taking additional measures such as temporarily suspending loan issuance or halving loan limits, raising concerns about the impact on genuine borrowers.

According to the financial sector on the 30th, KB Kookmin Bank has temporarily lowered the limits on jeonse deposit loans, mortgage loans, group loans, and credit loans starting from the previous day due to the surge in household loans.

First, jeonse deposit loans will be operated only within the range of the increased deposit amount when renewing lease contracts. Mortgage loans (jumdae) will also face temporary restrictions on subscribing to Mortgage Credit Insurance (MCI) and Mortgage Credit Guarantee (MCG) related to priority repayment deposits. Due to the MCI and MCG subscription restrictions, loan limits are expected to be reduced by about 50 million KRW for apartments in Seoul and about 23 million KRW for metropolitan cities in other regions. For group loans, the collateral appraisal price criteria for handling move-in balance loans will be applied more conservatively. Refinancing loans ('loan switching') from other banks will also be prohibited.

These measures by Kookmin Bank are due to the continued increase in loans. As of the 23rd, Kookmin Bank's household loan balance was 168.8297 trillion KRW, up 4.31% from the end of last year. While other banks are nearing the financial authorities' loan management targets, Kookmin Bank, which has the largest loan volume, is also approaching its limit.

Other banks are also joining the loan reduction trend one after another. Hana Bank will temporarily restrict some MCI and MCG loan products starting from the 1st of next month. Additionally, among six loan brokerage corporations recently contracted with Hana Bank, three exceeded the pre-agreed loan limits, resulting in a temporary suspension of loan issuance through them until next month.

NH Nonghyup Bank has also suspended new household real estate secured loans until November 30. Nonghyup Bank's suspension of new household real estate secured loans is due to the household loan growth rate exceeding the financial authorities' recommended 5% in the first half of this year. Nonghyup Bank's household loan balance increased by 7.33% from the end of last year to 135.587 trillion KRW.

The financial authorities are also urging the industry daily to curb the increase in household loans. The Financial Services Commission recently summoned representatives from three institutions, including SBI Savings Bank, which has the largest loan volume in the industry, and two savings banks with high household loan growth rates in the first half, urging them to limit household loan growth. The FSC had previously called in representatives from KB Savings Bank to demand total household loan management. Additionally, the internet-only bank KakaoBank has once again received a loan management request from the FSC.

The problem is that the financial authorities are expected to announce a strong household debt measure early next month. If additional loan regulations are announced next month, the loan cliff is expected to deepen. Among the additional regulations under consideration is advancing the timing of strengthening the Debt Service Ratio (DSR). Currently, the DSR regulation applies to mortgage loans exceeding 600 million KRW in all regulated areas or credit loans exceeding 100 million KRW. If the DSR regulation is strengthened, the scope will expand to include loans exceeding 200 million KRW in total.

As the financial authorities and banks tighten loan regulations, genuine borrowers preparing for marriage or moving are thrown into confusion. Especially since jeonse deposit loans are partially included in the banks' loan suspension lists, this confusion is expected to grow. From January to August this year, among the household loan increase amount (28.661 trillion KRW) of the five major banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?jeonse loans accounted for more than half. Currently, Nonghyup Bank, along with Woori Bank and Kookmin Bank, has temporarily suspended handling jeonse loan products based on the new balance COFIX standard.

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