Second-Tier Financial Loan Counters in 'Uproar'... How Much Will Regulations for Medium- and Low-Credit Borrowers Be Eased Next Year? (Comprehensive)

Financial Authorities Consider 'Easing' Total Household Loan Caps Next Year
Shift in Tone Amid 'Loan Cliff' Criticism as Secondary Financial Sector Also Tightens
Experts Say "Positive but Must Avoid Token Measures"
High-Credit Borrowers Face Loan Shortage Next Year... Criticism of 'Partial Easing'

[Asia Economy Reporters Kim Jin-ho and Song Seung-seop] Financial authorities are considering excluding middle- and low-credit borrowers and policy finance from next year's total household loan volume regulations, which is expected to somewhat ease the financial burden on ordinary citizens. This move is interpreted as a response to criticism that real borrowers are being pushed to a 'loan cliff' due to unprecedented loan regulations this year. However, high-credit borrowers are still expected to face difficulties obtaining loans next year, leading to criticism that this is a 'half-hearted regulatory relaxation.'

Financial Authorities Consider Partial Easing of Loan Regulations Amid Middle- and Low-Credit Borrowers' Outcry

According to financial authorities on the 6th, the Financial Services Commission plans to soon hold discussions with the financial sector regarding excluding middle- and low-credit borrowers and policy finance products from the total volume regulations. On the 3rd, Financial Services Commission Chairman Ko Seung-beom said at a press briefing, "We are indeed considering excluding them from total volume management," adding, "Specific incentive measures will be finalized within this month after consultations with the financial sector."

The financial authorities' announcement of a flexible and adaptive operation plan for household debt total volume regulations, including this proposal, is analyzed as an intention to relieve the financial burden on real borrowers among ordinary citizens. Although some banks have briefly resumed lending, even secondary financial institutions have been comprehensively blocked, rapidly pushing real borrowers into a loan cliff.

In fact, credit unions and Saemaeul Geumgo, which are mainly used by ordinary citizens, have recently completely stopped handling household loans. Other mutual finance institutions such as Nonghyup and Suhyup are also not issuing new housing-related loans.

Especially, the household loan volume of savings banks, the last bastion of secondary financial institutions, is approaching this year's total volume limit (21.1%). According to the industry, as of September, the household loan volume of savings banks was 39.5225 trillion KRW, leaving only 1.3688 trillion KRW before reaching the total volume limit. Considering the increases in October and November, industry insiders explain that the remaining loan capacity is practically very limited.

[Image source=Yonhap News]

The loan threshold is expected to be particularly high for low-credit borrowers compared to high- and middle-credit borrowers. This is because the total volume for high-interest livelihood loans or small emergency loans, which low-credit borrowers mainly use, is more stringent. The total volume regulation that savings banks must comply with limits the household loan growth rate to within 21.1% compared to December last year. Among these, loans excluding policy finance products like Saessal Loan and mid-interest loans must be managed within 5.4%.

First-tier financial institutions also find it difficult to actively lend since next year's total volume regulation level will be determined based on compliance. As of the end of last month, the average household loan growth rate of the five major banks was 4.61%, leaving less than 0.4 percentage points below the 5% threshold set by financial authorities. Although some banks have recently resumed lending, consumers' actual experience seems minimal.

It is also analyzed that criticism from real borrowers and political circles toward financial authorities influenced this situation. As household loans were tightened simultaneously this year, real borrowers who could not obtain loans have directed their anger at the Financial Services Commission. On the Blue House's public petition board, it is easy to find posts stating that many damages have occurred due to the financial authorities' one-sided regulations.

Moreover, the strong criticism from presidential candidates of both ruling and opposition parties regarding the damage to real borrowers caused by sudden loan regulations likely added pressure on financial authorities. A financial sector official said, "The increased pressure from political circles ahead of the presidential and local elections must have been a significant burden."

Good Intentions but Criticized as ‘Half-Hearted’

Experts view the financial authorities' intention to prevent the contraction of loans used by ordinary citizens during total volume management as desirable but warn that it should not be merely symbolic. There are concerns that if the financial authorities only review the system without implementing it or implement it minimally, it will become 'false hope' for ordinary citizens.

Professor Kim Dae-jong of the Department of Business Administration at Sejong University said, "Considering that middle- and low-credit borrowers have suffered the most from total volume regulations, increasing consideration for financially vulnerable groups is positive," but emphasized, "Rather than a slight exception in total volume regulations, full support is necessary."

Meanwhile, unlike middle- and low-credit borrowers, high-credit borrowers are expected to find it difficult to borrow money next year as well. Major banks have proposed a household loan growth target of 4.5?5% to financial authorities for next year. This is up to 1 percentage point lower than this year, raising the loan threshold further.

The individual Debt Service Ratio (DSR) will also be implemented six months earlier than before, starting next month. From January next year, for all loans exceeding 200 million KRW in total loan amount, the annual principal and interest repayment must not exceed 40% of annual income. For real borrowers needing emergency funds at the beginning of the year, borrowing money will become considerably more difficult.

A financial sector official criticized, "Telling lenders not to lend to those who are capable but only to those in difficulty contradicts the basic logic of finance," adding, "From the financial companies' perspective, there is a risk that the ratio of non-performing loans could significantly increase."

Professor Sung Tae-yoon of Yonsei University's Department of Economics also pointed out, "Basically, it makes sense to lend to borrowers who have the ability and creditworthiness, with income and repayment capacity."

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