Following Large Firms, Small and Medium Insurers Also... Loan Suspension Domino Effect

Banking Sector Regulation Balloon Effect Spreads to Insurance Sector
"Household Loan Total Volume Management... Increasing Proactive Responses"

[Asia Economy Reporter Oh Hyung-gil] Following large insurance companies, relatively smaller and medium-sized insurers with smaller loan portfolios are also locking down new loans.

After some insurers proactively halted lending in response to the financial authorities' comprehensive loan regulations, this trend appears to be spreading to other insurers. This year, with a sharp increase in insurance policy loans, the 'balloon effect' caused by loan regulations is spreading uncontrollably.

According to the insurance industry on the 1st, Tongyang Life has stopped accepting new applications for real estate-secured loans, officetel-secured loans, and lease deposit-secured loans since last month. These products allowed borrowing up to 70% of the collateral value and up to 90% of the lease deposit at an interest rate of 3-4% per annum, similar to banks.

The suspension of loans, which was mainly seen among large insurers, is spreading to small and medium-sized companies. On the 1st of last month, DB Insurance suspended new credit loan operations until the end of this year. KB Insurance stopped stock purchase fund loans. Stock purchase fund loans are stock loan products where the insurer lends stock investment funds using assets in securities accounts as collateral.

Samsung Life is also managing the borrower's total debt service ratio (DSR) at the first-tier financial institution level of around 40%. While the second-tier financial sector allows a DSR of up to 60%, it is interpreted that Samsung Life has proactively slowed down lending due to the recent trend of increasing household loans.

The balloon effect caused by bank loan regulations has become evident in the insurance industry this year. According to the status of insurance company loan receivables as of the end of June announced by the Financial Supervisory Service, the balance of household loans by insurers was 126.6 trillion won, an increase of 1.7 trillion won compared to the previous quarter.

Mortgage loans increased by about 1 trillion won to 49.8 trillion won compared to the previous quarter, insurance policy loans increased by 400 billion won, other loans by 200 billion won, and credit loans by 100 billion won each. It is analyzed that before the DSR regulation started in July, loans were taken from insurers, which have relatively low loan interest rates among non-bank sectors.

Although there have been no cases yet of suspending insurance policy loans, which are major loan products of insurers, some point out that it is only a matter of time. Insurance policy loans, secured by payable insurance benefits, can be obtained without credit checks as long as identity is verified, and can be repaid at any time, making them considered livelihood loans.

For this reason, there are concerns that as banks, savings banks, and card companies tighten lending, borrowers will turn to the easily accessible insurance policy loans.

An insurance industry official said, "In order to secure a margin for policy loans under the total household loan management, there is a trend to reduce other loans," adding, "Considering the trend of household loan demand moving to the non-bank sector where regulations have been relatively weak, the number of insurers proactively managing loans is expected to increase."

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