Savings Banks Violating Total Volume Regulations Increase from 17 to 22... Enjoying 'Reflected Benefits' Despite Authorities' Warnings (Comprehensive)

Loan Total Volume Regulation '21%'... Exceeded by 22 Savings Banks
Quarterly Growth Slows, but Number of Exceeding Firms Increases
Financial Holding Savings Banks Expand Loans by up to 50% Each

[Asia Economy Reporter Song Seung-seop] Despite the financial authorities' strong orders for a strict 'total household loan volume regulation,' savings banks exceeding the limit of '21%' are emerging one after another. Although the overall growth trend has slowed, the number of companies benefiting from the spillover effect seems to be increasing. The financial authorities have stated that they will impose penalties on next year's total volume depending on compliance with the regulations, but some savings banks are complaining that "savings banks that did not comply with the regulations have profited more."

According to financial authorities and related industries on the 1st, among 79 savings banks, 22 exceeded the total household loan volume recommended by the authorities as of the third quarter. This accounts for 27.8%, an increase of 5 companies (Hana, Sangsangin, Korea Investment, ES, Star Savings Bank) from 17 in the second quarter. Although the quarterly growth rate slowed to 4.0% from 7.6% in the previous quarter, more savings banks exceeded the guidelines when examined by company.

The financial authorities delivered the '2021 Household Loan Management Plan for Savings Banks' to the savings bank sector, requesting that household loans be managed at around 21.1% compared to the previous year. Last year, the industry's household loan growth rate was 21.1% (KRW 5.5 trillion). However, high-interest household loans, excluding mid-interest loans and policy financial products (such as Saessal Loan and Sa-itdol), must be capped within 5.4%.

The savings bank with the highest growth rate was Central Savings Bank, based in the Honam region. The household loan balance in the third quarter was KRW 9.2 billion, with a year-end growth rate of 109.0%. It is virtually impossible to meet this year's total volume limit. The growth rate in the first half was already 84.0%, four times the regulatory level, due to increased household loans in the third quarter as well.

Large savings banks also appeared one after another. Among the top five companies by assets, Welcome Savings Bank and Korea Investment Savings Bank recorded growth rates of 21.8% and 28.4%, respectively. Among the savings banks affiliated with the five major financial groups, all except Woori Financial Savings Bank exceeded the total volume limit. The growth rates of the other four companies were KB Savings Bank (50.0%), Shinhan Savings Bank (35.9%), NH Savings Bank (35.2%), and Hana Savings Bank (21.7%), respectively.

Although the total volume was well maintained... Savings Banks say "Non-compliant companies benefited"

The increase in violators despite the financial authorities' guidelines is because the household loan total volume regulation is a 'sectoral' regulation. Even if an individual company exceeds the total volume limit, the primary goal is achieved as long as the total volume of the entire sector is maintained. As a result, while the majority of companies comply with the financial authorities' total volume regulation, those who violate it gain enormous profits. Also, since the total volume regulation is based on the growth rate compared to the previous year-end, significantly increasing the household loan size this year is advantageous for next year's business.

The financial authorities recognize the problem and intend to take action. If the current situation is left unattended, there is a possibility of falling into a kind of 'dilemma' where all companies start to believe that not complying with the regulations is more beneficial.

Among savings banks that have complied with the regulations, complaints such as "We managed loans strictly fearing the total volume would be exceeded, but it feels futile" are emerging. Savings banks have prepared and submitted loan management plans based on past loan performance, business plans, and government policies according to the guidelines. They also reported how they would manage the total household loan balance and product-specific balances quarterly.

Accordingly, the Financial Supervisory Service has conducted special management and monitoring and reportedly issued direct warnings to some companies, advising them "not to take the current situation as a business opportunity." They have also established a policy to differentiate next year's household loan total volume regulations by company. Savings banks are expected to receive next year's household loan growth rate limits ranging from 10.8% to 14.8%, depending on compliance with the regulations.

There are also concerns about effectiveness. Some places have already improved loan performance by several tens of percent, and there is worry that companies growing by violating regulations like this year may appear again. A savings bank official said, "The household loan total volume regulation is a guideline, not a legally binding requirement," adding, "There may be savings banks that grow while receiving warnings from the financial authorities again."

Meanwhile, as the number of companies subject to lower total volume limits increases, the amount of loans that can be executed the following year is expected to decrease.

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