"'Borrowing Money Is Like Reaching for the Stars' The Plight of High Credit Borrowers... 'Why Are We Discriminated Against Despite High Scores?'"

Financial Authorities Plan to Raise Credit Thresholds for High-Credit Borrowers Under Next Year's Loan Volume Regulations
Banks Open Loans Mainly to Low-Income, Low-Credit Borrowers While Tightening Restrictions on High-Credit Borrowers
High-Credit Borrowers Who Carefully Manage Credit Scores Face Reverse Discrimination... Controversy Over Violation of Market Principles

[Image source=Yonhap News]

[Asia Economy Reporters Kwangho Lee and Hayoung Ki] The distortion in lending among high-, medium-, and low-credit borrowers in the financial market is interpreted as a result of financial authorities pointing to high-credit borrowers as the cause of the ballooning household debt. Banks have excessively increased loan limits mainly for high-credit borrowers, encouraging debt-financed investment (debt investment) and "Yeongkkeul" (borrowing to the limit). The policy stance of further raising the loan threshold for high-credit borrowers is seen by authorities as a process to correct this issue. It can be read as a need for a temporary 'brake' on high-credit borrowers.

However, controversy is intensifying over restricting loans for high-credit borrowers who have carefully managed their credit scores, as it is seen to violate basic principles of the financial market. There are also criticisms that equating high-credit borrowers with high-income earners and discriminating against those with high credit scores but not necessarily high income is problematic.

According to the financial sector on the 21st, under the strong loan regulations by financial authorities, internet-only banks are significantly reducing loans to high-credit borrowers while expanding loan benefits for medium- and low-credit borrowers. They have raised the threshold by limiting new loans and overdraft account subscriptions for high-credit borrowers or increasing loan interest rates. Commercial banks have also decided to reduce the total loan volume for high-income, high-credit borrowers while significantly increasing loans for medium- and low-credit borrowers. This means it will become more difficult to borrow money from banks with lower interest rates for those with higher credit scores.

Long-term card loans (card loans) from credit card companies are also seeing interest rates rise mainly for high-credit borrowers. Over the past three months, card loan interest rates for high-credit borrowers in standard grades 1-2 have increased by nearly 2 percentage points. Last month, the average card loan interest rates (operating price) for grades 1-2 based on the standard grades of seven major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) ranged from 8.11% to 13.48%. Among these seven companies, four raised the average card loan interest rates for grades 1-2 compared to September. A credit card industry official said, "Due to the financial authorities' strengthened household loan regulations, we have no choice but to raise card loan interest rates for high-credit borrowers," adding, "With regulatory tightening and base rate hikes, card loan interest rates are expected to continue rising next year."

Some argue that high-credit borrowers are being squeezed as a means to curb housing prices or prevent debt-financed investment. The loan market is being distorted by dividing real loan demanders according to creditworthiness and income, which does not align with market order.

Financial authorities maintain that this is only a 'perception' and that the total household loan volume management and borrower-specific total debt service ratio (DSR) system to be implemented next year will not be applied disadvantageously to high-credit borrowers. A financial authority official explained, "If loans were denied solely based on credit grades, such as refusing loans to grades 1-5 and only granting them from grade 6 onwards, that would be reverse discrimination. However, loans to medium- and low-credit borrowers have relatively higher interest rates and lower limits, so there is no disadvantage to high-credit, high-income borrowers."

Experts are voicing concerns. Professor Tae-yoon Sung of Yonsei University’s Economics Department said, "Basically, it is right to provide loans to borrowers who have income and repayment ability based on their capability and creditworthiness," adding, "The controversy over reverse discrimination arises because support for low-income people should be provided through fiscal assistance, but everything is approached through financial support."

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