Due to Demand Decline and Yoon's Deregulation Policy... Banks Unlock Household Loan Restrictions

With Us Leading, Regulations on Jeonse Loans Eased for All Generations Including Shinhan and Hana... Expansion Also for Mortgage and Credit Loans

[Asia Economy Reporter Yu Je-hoon] Banks are unlocking the latch on household loans that had been tightly closed. This move aims to protect profitability as loan demand decreases due to interest rate hikes and a slump in real estate transactions. In particular, this trend is expected to accelerate as President-elect Yoon Seok-yeol, who is set to take office in May, continues the policy of easing household loan regulations.

According to the financial sector on the 23rd, Shinhan and Hana Banks have decided to ease the so-called ‘three types of jeonse loan regulations’ starting from the 25th. While Woori Bank reverted the three regulations to their previous state from the 21st, other commercial banks are also reviewing this, indicating that the easing of jeonse loans is spreading across the entire banking sector.

Previously, in October last year, the banking sector established and implemented voluntary regulations related to jeonse loans. The intention was to exclude jeonse loans from the total household loan management system for real demand borrowers, while strengthening screening criteria. The main points were to allow loans only within the increased amount of the deposit during jeonse renewal contracts, shorten the loan application period to before the balance payment date on the lease contract, and prohibit non-face-to-face jeonse loans for one-homeowners.

The current easing of jeonse loan regulations by banks involves reverting these three regulations to their previous state. First, the jeonse loan application period will be restored from the previous ‘balance payment date’ to ‘within three months from the earlier of the balance payment date or the resident registration move-in date,’ and non-face-to-face jeonse loans will be allowed again for one-homeowners.

The loan limit for jeonse deposits will also be expanded. When renewing a jeonse contract, the loan limit was previously restricted to the increased deposit amount, but now it will be expanded to within 80% of the deposit amount stated in the renewal contract. For example, if the jeonse deposit increased from 100 million KRW to 150 million KRW upon renewal, previously only the increased amount of 50 million KRW could be loaned, but now loans up to 120 million KRW, which is 80% of the deposit, can be obtained.

The threshold for household loans beyond jeonse loans is also gradually lowering. KB Kookmin Bank reduced mortgage loan interest rates by 0.1 to 0.2 percentage points until the 6th of next month, and Woori Bank introduced a preferential interest rate of 0.2 percentage points for new loans until the end of May. Each bank also raised credit loan limits, such as for overdraft accounts, to levels similar to before.

The reason banks are unlocking the tightly held household loan latch is interpreted as a measure to protect profitability amid reduced loan demand caused by interest rate hikes and a downturn in the real estate market. According to the Bank of Korea, the outstanding household loan balance at the end of last month was 1,060.1 trillion KRW, a decrease of 100 billion KRW compared to the previous month. This marks the third consecutive month of decline following 200 billion KRW in December last year and 500 billion KRW in January, making it the first time since statistics began in 2004 that household loans in the banking sector have decreased for three consecutive months.

The financial sector expects the unlocking trend to continue as President-elect Yoon maintains the policy of easing household loan regulations. It is known that Yoon’s team is considering various measures, including abolishing the now ineffective total household loan management system, raising the loan-to-value ratio (LTV), and postponing the third phase of the debt service ratio (DSR) regulation (applicable to total loans over 100 million KRW) scheduled for implementation in July.

A representative from a commercial bank said, "Due to interest rate hikes and the housing purchase wait-and-see trend following the presidential election, the total household debt management system has effectively become meaningless," adding, "From the banking sector’s perspective, since the new government is pushing for easing household loan regulations, there is also a proactive aspect in reflecting this policy trend."

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