All Loan Counters Are Closed... Desperate Loan Refugees Likely to Flock to Mutual Finance Institutions

Shinhan Bank Restricts Jeonse Loans via Loan Recruiters
Limit Reduced from 'No Cap' to 500 Billion KRW
Internet Banks Also Cut Limits and Halt New Loans
Some Mutual Finance Institutions Block Member Loans Amid Surge
Political Circles Say "Sudden Tightening Causes Loan Crisis"

[Asia Economy Reporters Sunmi Park, Seungseop Song]Kim Jeongmin (45, pseudonym), a homeowner in need of a jeonse eviction fund by the end of November, has recently been losing sleep over worries about securing money. Last year, he planned to withdraw funds invested in the stock market using a bank credit loan, but the sharp stock price plunge made it difficult to raise funds. In desperation, he visited his main bank, Woori Bank, only to be told that he could get only about one-third of the expected loan limit. Ultimately, Kim plans to visit Shinhan Bank, introduced by a real estate agent, or the higher-interest secondary financial institutions.

Amid an unprecedented loan cliff crisis in the banking sector, cash-strapped ordinary citizens are flocking to secondary financial institutions. Following commercial banks, even internet-only banks are shutting down their loan windows one after another, and the rapid fluctuations in the stock and cryptocurrency markets?where many have invested with borrowed money (debt investment)?have made financing difficult.

As real demand borrowers who find it hard to secure funds from banks increasingly turn to other financial companies?a clear ‘balloon effect’?authorities plan to include related measures in additional policies to be announced this month. There are growing concerns that the financial lifelines for cash-strapped ordinary citizens and self-employed individuals may soon be cut off.

According to the financial sector on the 8th, Shinhan Bank has limited the jeonse loan limit through loan agents from ‘unlimited’ to 500 billion KRW starting this month. However, demanders blocked from other banks are flocking in, and the limit is nearly exhausted. The suspension of agent loans is perceived as a preliminary step before a full bank loan suspension.

This is why there is speculation that Shinhan Bank is likely to attempt loan restrictions or suspensions by the end of the year. As of the previous day, Shinhan Bank’s household loan growth rate was 3.15%. Although there is room compared to the financial authorities’ guideline (5?6%), rumors that Shinhan Bank has the most loan capacity among banks are attracting real demand borrowers.

Internet Banks and Secondary Financial Institutions Also Tightening

Although internet banks offered higher loan interest rates than commercial banks, they provided generous limits but have now succumbed to government pressure. KakaoBank, which had previously stopped issuing new overdraft accounts, will fully suspend new credit, Saetdol, and jeonse deposit loans for high-credit borrowers until the end of the year starting today. K Bank has reduced its credit loan limit from 250 million KRW to 150 million KRW, and Toss Bank, which launched just three days ago, has already exhausted 40% of its annual loan limit. They are in a position to halt loan operations immediately after opening.

The situation in secondary financial institutions is also unfavorable. The National Federation of Fisheries Cooperatives has completely stopped new household loans through cooperatives starting this month. Not only non- and semi-members but also members cannot receive new mortgage, jeonse funds, or interim payment group loans. The National Agricultural Cooperative Federation, the largest among mutual finance sectors, already restricted some household loans in August. The Korea Forest Service Cooperative also exceeded its household loan total volume target by 5%. Accordingly, there is strong likelihood of additional measures to comply with total volume targets.

According to data submitted by Democratic Party lawmaker Min Hyungbae from each mutual finance central association, the household loan balance in the mutual finance sector reached 249.3085 trillion KRW in the first half of this year. This is a 3.78% (9.083 trillion KRW) increase from the same period last year, leaving only 0.32% (768.9 billion KRW) remaining to the total volume.

A mutual finance sector official explained, "As borrowers who could not borrow enough from commercial banks move to secondary financial institutions due to the ‘balloon effect,’ the proportion of high-credit borrowers (grades 1?2) soared from 26.75% last year to 46.53% this year. We are monitoring cooperatives whose loan ratios exceed last year’s levels and providing special management guidance individually."

Among self-employed individuals urgently needing cash for living expenses, some are turning to high-interest card loans. Recently, there has been a significant increase in new card loan applications or requests to raise existing limits. However, card companies have also started reducing the overall size of card loans under financial authorities’ management orders, raising concerns that vulnerable borrowers who cannot secure funds within the formal financial system may be driven to illegal private loans.

In the political arena, there are reactions that the current loan suspension crisis has gone too far. Yoo Ui-dong, a member of the People Power Party, said, "The banking sector has always exceeded the annual household loan total volume target, and the financial authorities did not raise issues about this until suddenly tightening household loans, causing a crisis. It is a reckless household loan total volume regulation and the methods are abnormal."

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