Bank Loans Opened... But Strengthened DSR Regulations and Higher Loan Interest Rates 'Hold Back' (Comprehensive)

Banking Sector Household Loan Growth Slows
Resumption of Suspended Loan Products, Limit Increases, and Revival of Preferential Interest Rates Still Make 'Yeongkkeul' and 'Bittou' Difficult

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] On the 3rd, the first day when the preferential interest rate for unsecured loans was raised by up to 0.6 percentage points, Mr. Kim Juhyuk (44), who had planned to take out a 100 million KRW unsecured loan ahead of home renovation next month, visited the counter of his main bank. However, after consulting with the branch staff, he requested only a 50 million KRW unsecured loan, less than originally planned. Thanks to the increased preferential loan rate, the interest rate on the unsecured loan he could receive immediately dropped to around 3.5%, but due to the heavy interest burden on other loans he must repay, he decided to borrow only the funds he absolutely needed.

On the 3rd, the first day banks resumed selling loan products that had been suspended due to the reset of the household loan total volume management limit for the new year, the atmosphere at major commercial bank counters in Seoul was similar to usual without any particular crowding.

An employee in charge of loan consultations at Bank A’s Gangnam branch said, "From this month, new mortgage loans for one-homeowners, which were not allowed until last month, have become possible, but not many people visited the bank counter to apply for loans," adding, "Even though new mortgage loan sales have fully resumed, actual loan connections are rare due to the sluggish real estate market."

An employee at Bank B’s Yeouido branch also expected a rush of customers to the branch due to the revival of preferential interest rates on unsecured loans, but said there has been little difference compared to before the preferential rates were applied. He said, "Even if customers take out unsecured loans, loan interest rates continue to rise, so more customers are trying to borrow only as much as necessary," adding, "Unlike the previous ‘Youngkkeul (borrowing to the limit)’ and ‘Debt Investment (debt-financed investment)’ craze, there is no atmosphere of trying to borrow as much as possible."

Although banks have loosened the household loan management limits that had been tied up for the new year, improving loan capacity compared to the end of last year, loan execution is being carried out mainly for real demand. Most customers who had consulted about loans in advance to secure necessary funds check the changed conditions in the new year before executing the loan.

A Bank C official explained, "January is traditionally a low season for loans, and the immediate application of the second stage of the Debt Service Ratio (DSR) regulation during the interest rate hike period is affecting loan decisions," adding, "Although banks have opened the door to loans more widely, it is characteristic that more people are trying to borrow only as much as they need, focusing on real demand."

Household Loan Growth in Banking Sector 'Slows'

In fact, one commercial bank applied preferential interest rates to mortgage loans and jeonse deposit loans on the 3rd, but the balance showed little difference compared to the last week of December (27th?31st). Banks that applied preferential interest rates to unsecured loans also maintained similar levels in both the number and amount of new loans on the 3rd compared to the previous week.

The public offering subscription market, which had stimulated ‘Youngkkeul’ and ‘Debt Investment,’ is also quiet, so the prevailing view is that the household loan growth, which slowed last month, is unlikely to suddenly turn into a surge. Although there may be some speculative demand to take out loans in advance while the loan threshold is expected to rise further this year as it did last year, the financial market environment makes a surge unlikely. According to DSR regulations, from this month, a borrower-level DSR of 40% applies when the total loan amount exceeds 200 million KRW, and card loans are also included in the DSR calculation.

At the end of last month, the household loan balance of the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 709.0529 trillion KRW, increasing by only 364.9 billion KRW from the previous month. The combined effect of rising interest rates and regulations has curbed the trillion-KRW level growth. The sharp slowdown in household loan growth was largely due to a significant decrease in individual unsecured loan balances. The unsecured loan balance at the end of December was 139.5572 trillion KRW, down 1.5766 trillion KRW from the previous month.

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