Total Limit Halved and Tightening DSR... Savings Banks Sigh (Comprehensive)

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

[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) regulations, 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 directly reported to the CEO that the business environment and profitability could significantly deteriorate next year. This concern arises from the substantial strengthening of financial and regulatory levels, with no clear plan to maintain the growth momentum seen this year.

The total household loan limit for the savings bank sector is expected 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.

There are strong calls to expand corporate finance, but since it is essentially a new market to enter, there are many challenges. A savings bank official explained, “We have focused on retail finance, so although we say we will actively expand corporate loans, it is true that we lack 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 considered to be the expansion of mid-interest loans. This is because the financial authorities have recently been reported to be considering incentives or exemptions from total volume regulations specifically for mid-interest loans. The total supply of mid-interest loans is also planned to increase from 32 trillion won this year to 35 trillion won next year.

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

The problem is that competition within the market is already fierce, including internet banks and online investment-linked finance companies (OnTu-eop). Even commercial banks, which face tight total volume limits, are reportedly showing interest in high-quality mid-credit borrowers. Various sectors are expanding their mid-interest loan territories with strong capital and financial technology, making it difficult for savings banks to exert the same level of dominance as before.

The profit formation method in the mid-interest loan market is also changing. Typically, savings banks have earned profits by setting high interest rates on mid-interest loans. Recently, however, with the steady lowering of the legal maximum interest rate and the lowering of the mid-interest loan criteria recognized by financial authorities, it has become difficult to earn the same level of profits as before. While the base interest rate hikes increase funding costs, mid-interest loan markets face the problem of having to keep interest rates low.

The tightening of DSR regulations is similar. From January next year, the average DSR for the secondary financial sector will be reduced from 60% to 50%. For the savings bank sector, the average DSR standard will be lowered 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 need to attract more customers, but given the regulatory environment, this is nearly impossible, so the business outlook is bleak.”

In particular, unlike large companies that have begun to secure future priority businesses such as digital transformation (DT) and MyData, medium and small-sized savings banks are expected to suffer greater damage. In fact, the household loan growth rate for savings banks in the third quarter of this year recorded 17.0% compared to the end of last year, but among the total 79 companies, 32 recorded negative growth rates.

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