Total Volume Regulation, DSR Reduction, Intensified Competition... Savings Banks "Outlook for Next Year is Gloomy"

Household Loan Total Limit Halved Next Year
Average DSR by Sector Also Drops from 90% to 65%
Competition Intensifies for Mid-Interest Loans
Industry Says "Growth Like This Year Will Be Difficult"

[Asia Economy Reporter Song Seung-seop] The savings bank industry, which experienced rapid growth during the COVID-19 pandemic, is expected to face difficulties next year. This is due to the tightening of household loan volume regulations and the Debt Service Ratio (DSR) restrictions, as well as intensified competition even in the mid-interest loan market, where they previously held a relative advantage.

According to the industry on the 10th, the retail finance division of a savings bank based in the metropolitan area informed its CEO that the business environment and profitability could significantly deteriorate next year. This concern arises from the substantial strengthening of financial and regulatory measures, with no clear plan to sustain the growth seen this year.

The total household loan limit for the savings bank sector is set to decrease to 10.8?14.8% per company starting next year. This is about half of this year's total limit of 21.1%. Since most savings banks have portfolios focused on the consumer finance market, if they do not find other means to compensate for revenue, their net income is bound to sharply decline.

Corporate Finance and Mid-Interest Loans Also Challenging... "It Won't Be as Easy as This Year"

There is a strong call to expand corporate finance, but since it is essentially a new market to enter, there are many difficulties. A savings bank official explained, "We have focused on retail finance, so although we say we will actively expand corporate finance, we lack the underwriting capabilities and data. Many small and medium-sized enterprises have become vulnerable after COVID-19 and the interest rate hike period, so excessively increasing corporate loans for sales purposes is risky."

The most realistic option is to expand mid-interest loans, but even this is challenging. Competition with internet banks and online investment-linked finance companies is already fierce. It has been reported that financial authorities are considering incentives or exemptions from total volume regulations specifically for mid-interest loans, which has also attracted interest from commercial banks. Moreover, recent reductions in the maximum interest rate and lowering of mid-interest loan criteria have made it harder to earn profits as before. With the base interest rate rising, funding costs increase, but in the mid-interest loan market, there is pressure to keep interest rates low.

The strengthening of DSR regulations is also problematic. From January next year, the average DSR for the secondary financial sector will decrease from 60% to 50%. For the savings bank sector, the standard will be adjusted from 90% to 65%. This means the amount of money that can be lent to a single customer will decrease. Another savings bank official lamented, "To maintain the same profits as this year, we would need to attract more customers, but given the regulatory environment, this is nearly impossible, making the business outlook bleak."

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