Even Secondary Financial Institutions Can't Lend Money... Commercial Banks, Internet Banks, and Mutual Finance 'Loan Suspension' Relay (Comprehensive)

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 Credit Unions Block Member Loans Amid Shift to Mutual Finance
Political Circles Say "Sudden Tightening Causes Loan Crisis"

[Asia Economy Reporters Sunmi Park and Seungseop Song] Kim Jungmin (45, pseudonym), a homeowner who needs a deposit eviction fund by the end of November, has recently been losing sleep worrying about securing money. Last year, he planned to withdraw funds invested in the stock market through a bank credit loan, but the sharp drop in stock prices 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 second-tier financial sector with higher interest rates.

Amid an unprecedented loan cliff crisis in the banking sector, low-income people urgently needing funds are flocking to the secondary financial sector. Following commercial banks, even internet-only banks are shutting down loan windows one after another, and the rapid fluctuations in the stock and cryptocurrency markets, where many have invested with borrowed money, have made financing difficult.

As the ‘balloon effect’ becomes evident, with real demand borrowers unable to secure funds from banks turning to other financial institutions, authorities plan to include related measures in additional policies to be announced this month. There are growing concerns that the financial lifelines of low-income people and self-employed individuals in urgent need of money may soon be cut off.

According to the financial sector on the 8th, Shinhan Bank has limited the loan limit for jeonse (key money deposit) loans through loan agents from ‘no limit’ to 500 billion KRW starting this month. However, demanders blocked from loans at other banks are flocking in, and the limit is nearly exhausted. The suspension of agent loans is perceived as a preliminary step before the bank completely stops lending.

This is why there is speculation that Shinhan Bank is likely to attempt loan restrictions or suspensions until 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 lending capacity among banks have attracted real demand borrowers.

Internet banks, which offered higher interest rates but generous loan limits compared to commercial banks, have also 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 suspend loan operations immediately after opening.

The third internet bank, Toss Bank, scheduled to launch on the 5th, is drawing attention from the banking sector. It has announced the release of groundbreaking interest rate products even before its launch, including the highest deposit interest rate in the banking sector at 2% per annum and a minimum loan interest rate in the high 2% range, causing tension not only among other internet banks but also among commercial banks. Especially as financial authorities tighten regulations on household loans, leading to rising loan interest rates and restrictions on loan limits, Toss Bank's announcement of unsecured loans with a maximum limit of 270 million KRW is expected to attract demand from so-called "loan refugees." The photo shows the Toss Bank headquarters in Gangnam-gu, Seoul, on the 4th. Photo by Hyunmin Kim kimhyun81@

Secondary Financial Sector Also Hit by Total Loan Volume Regulations... Loan Windows to Close by Year-End

The situation in the secondary financial sector is also unfavorable. The Korea Forestry Cooperative plans to completely suspend household loans for associate and non-members starting next week. This includes suspending products secured by non-residential collateral such as land or forest land, including credit loans and mortgage loans. This decision was made because the proportion of non-residential collateral loans is higher than in other financial sectors.

On the 1st, financial authorities summoned the Korea Forestry Cooperative’s loan officers and requested compliance with the household loan volume targets. The household loan growth rate of over 130 Korea Forestry Cooperative branches nationwide has exceeded 5%. The target growth rate for this year was set at an average of 4%, which has already been surpassed.

The Fisheries Cooperative has completely suspended new household loans since the 1st of this month. Not only non- and associate members but also members cannot receive new mortgage loans, jeonse deposit loans, or interim group loans. Loans are only provided in a limited manner when members need funds for fishery management. The National Agricultural Cooperative Federation, the largest mutual finance sector, suspended new group loans, jeonse deposit loans, and mortgage loans for non- and associate members nationwide in August.

The mutual finance sector must limit annual household loans to 4.1% compared to the end of the previous year. According to data submitted by Democratic Party lawmaker Min Hyung-bae 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% (9.83 trillion KRW) increase from last year, leaving only 0.32% (768.9 billion KRW) remaining until the total limit.

There are also signs that high-credit borrowers, who mainly used commercial banks, are flocking to the mutual finance sector, which was mainly used by medium- and low-credit borrowers. This is the ‘balloon effect,’ where borrowers unable to borrow enough from commercial banks move to the secondary financial sector. The new household loan amount in the first half of this year was 37.7165 trillion KRW, of which 17.5499 trillion KRW was from high-credit borrowers with credit grades 1-2. The proportion of high-credit borrowers, which was only 18.71% in 2018, rose to 26.75% last year and soared to 46.53% this year.

Even the mutual finance sector, which has managed household loans well, has begun special management for loan suspensions one after another. A representative from a credit union said, “It is difficult to assume that loan demand will necessarily shift to credit unions,” but added, “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 increase existing limits. However, since card companies have also started reducing the overall size of card loans under financial authorities’ management orders, vulnerable borrowers who find it difficult to secure funds within the formal financial system may be driven to illegal private loans, raising concerns.

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 volume targets, and the financial authorities did not raise issues about this until suddenly tightening household loans, causing a crisis,” adding, “It is an ignorant total household loan volume regulation and the methods are abnormal.”

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