[Exclusive] Citi Bank Reviews 'Long-term Principal and Interest Repayment' Method...Union Says "Interest Burden Increases"

Citibank Union Meets Financial Authorities, Delivers Position Statement
Document Claims "Citibank Loan Conversion Plan" and Expected Damages
Personal Credit Loans Due → 10-Year Principal and Interest Installment Repayment
For SOHO Loans Used as Operating Funds, '5-Year Installment Repayment Loan'
Claims Maturity Balloon Repayment to Be Reviewed for Conversion After 3 Extensions
Union Opposes, Saying "Financial Consumers' Interest Burden Increases"

Seoul Jongno-gu Korea Citibank Headquarters./Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Song Seung-seop] Customers who have borrowed money from Citibank Korea may face increasing monthly payments to the bank. This is because Citibank Korea is considering converting loans of customers with maturing contracts into a ‘long-term principal and interest repayment’ method or selling loan assets.

According to industry sources and financial authorities on the 23rd, the Citibank Korea labor union met with executives and officials in charge of banks at the Financial Supervisory Service along with the Financial Labor Union on the 19th. At this meeting, the union presented estimates of the potential damage scale from the loan conversion method planned by Citibank Korea and from 11 products in the credit, deposit, and card sectors.

The bank must prepare measures to prevent consumer damage when withdrawing from retail finance under the instructions of financial authorities. The key is to devise alternatives so that borrowers are not adversely affected when their loans mature.

According to documents, Citibank Korea is examining a method to convert personal unsecured loans with expired contracts into ‘10-year maturity principal and interest installment loans.’ Even if the loan was borrowed as a ‘lump-sum repayment at maturity’ loan, instead of extending it, the borrower would repay over a long period in installments. For personal business owners and small and medium-sized enterprise loans (Soho loans), operating funds would be converted into ‘5-year maturity installment loans,’ and lump-sum repayment loans would be extended up to three times (years) before being refinanced into installment loans.

The union expressed an opinion that this plan is inappropriate as it increases consumers’ monthly interest burden. The union estimated that a customer who borrowed 100 million KRW through a personal unsecured loan (average interest rate 4.34%) paid 360,000 KRW monthly under the lump-sum repayment at maturity method, but would have to repay 1,030,000 KRW monthly under the 10-year maturity principal and interest installment method. For Soho loans as well, refinancing into installment loans would incur costs such as stamp tax, and the application of long-term interest rates could lead to higher interest rates.

Union Claims "Loan Asset Sales Could Lead to Reduced Limits or Interest Rate Hikes"

The union also opposed the sale of loan assets. They argued that if another bank purchases the loan assets, there is a high possibility that credit limits will be reduced or interest rates increased. At the meeting, Jin Chang-geun, chairman of the Citibank Korea labor union, reportedly stated, "I understand that the sale of loan assets is being considered as one of the liquidation measures by the board of directors," and emphasized, "Loan assets should not be sold to prevent consumer inconvenience and damage."

A union official warned, "(For personal unsecured loans) two-thirds of the loans exceed the customer's annual income," and added, "The bank that purchases these loans will likely reduce the total loan limit." Regarding the approximately 5.7 trillion KRW scale of Citibank Korea’s flagship Soho loans, the official said, "The average interest rate on existing loans is around 2.5?2.8%," and argued, "If the asset sale is completed, the purchasing bank will inevitably raise interest rates to improve profitability considering recent market new rates."

Concerns were also raised that customers holding ‘Citi Points’ without expiration dates could suffer disadvantages due to card renewal suspension. Currently, Citibank Korea has about 1.05 million credit card accounts with Citi Points (26.4 billion points) and Premier Mileage Points (4 billion points). If card renewal is suspended and membership withdrawal occurs, Citi Points will disappear after a certain period. It is claimed that customers will be unfairly forced to convert their points into mileage with expiration dates against their will.

There was also a call to prepare repayment plans for revolving balances mainly used by financially vulnerable groups. Citibank Korea has about 914,000 revolving payment accounts. If card renewal is suspended in the future and customers are required to make lump-sum repayments, it could impose a significant burden.

A Citibank Korea official stated, "There is nothing we can confirm at this time, and nothing is finalized until an official announcement is made."

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