Five Major Banks That Promised to Help Vulnerable Groups... 'Loans for Medium and Low Credit Borrowers Remain Unchanged from Two Years Ago'

Proportion of Loans to Medium and Low Credit Borrowers Among 5 Major Banks
'NongHyup > Shinhan > Hana > Kookmin > Woori' Order

Office of Rep. Kim Sung-joo, Proportion of Loans to Medium and Low Credit Borrowers Among 5 Major Banks
16.5% at the End of 2020 → 16.7% at the End of June This Year
No Progress... Loan Amounts Rather Decreased

[Asia Economy Reporter Sim Nayoung] Commercial banks that pledged to help financially vulnerable groups have not increased the proportion of loans to middle- and low-credit borrowers compared to two years ago. In terms of loan amounts, they have actually retreated compared to two years ago. Amid rising interest rates and a worsening economy, providing middle- and low-credit borrowers with repayment ability the opportunity to borrow from first-tier financial institutions with lower interest burdens than secondary financial institutions is essential for survival, but political circles are pointing out that such measures are not being implemented.

Top 5 Banks Fail to Improve Loan Proportion for Middle- and Low-Credit Borrowers
'NongHyup > Shinhan > Hana > Kookmin > Woori' Order

According to the 'Status of Credit Loans to Middle- and Low-Credit Borrowers at the Top 5 Banks' submitted by the Financial Supervisory Service to Kim Sung-joo, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, as of the end of June, the proportion of loans to middle- and low-credit borrowers at the top 5 banks was 16.7% (21.72 trillion KRW out of a total household credit loan of 129.49 trillion KRW).

Compared to 16.5% (22.13 trillion KRW out of 133.91 trillion KRW) at the end of 2020, there has been no progress. In fact, the loan amount to middle- and low-credit borrowers decreased by about 300 billion KRW.

At the end of last year, due to the total household loan volume regulation, banks raised the loan threshold for all citizens, causing the proportion of loans to middle- and low-credit borrowers to sharply drop to 13.5% (18.62 trillion KRW out of 138.5 trillion KRW).

For reference, when the Financial Supervisory Service collected these figures from each bank, government-guaranteed loans such as Saetdol loans or Sunshine loans were excluded.

Looking at the proportion of loans to middle- and low-credit borrowers by bank (as of June), the highest was NH NongHyup at 19.4% (4.11 trillion KRW out of 21.21 trillion KRW). Next was Shinhan Bank at 18.2% (5.54 trillion KRW out of 30.39 trillion KRW), Hana Bank at 16.2% (3.28 trillion KRW out of 20.34 trillion KRW), and Kookmin Bank at 15.8% (5.57 trillion KRW out of 35.24 trillion KRW). The lowest was Woori Bank at 14.4% (3.21 trillion KRW out of 22.28 trillion KRW).

[Image source=Yonhap News]

Focus on Supporting Existing Borrowers Due to Risk Increase Concerns
Growing Interest Burden on Vulnerable Groups... Financial Authorities Need Countermeasures

The reason commercial banks have not increased the proportion of loans to middle- and low-credit borrowers compared to the past is due to concerns about rising risks. This can be seen from the tens of trillions of won in financial support measures that the top 5 banks have consecutively announced in recent months. The banks' support measures for vulnerable borrowers mainly include reducing interest burdens for existing borrowers through 'interest reduction for borrowers with good repayment records' or refinancing high-interest loans over 7% per annum into lower fixed-rate loans.

A commercial bank official said, "Since the interest rates for middle- and low-credit borrowers in first-tier financial institutions are generally lower than those in secondary financial institutions, lowering the loan threshold for these borrowers would be helpful, but it is not an easy decision for banks," adding, "As the government's policies for extending maturity and deferring repayments for small business owners continue, banks are reluctant to bear additional risk burdens."

Nevertheless, considering that banks have posted record-high profits in recent years due to the surge in loans and interest amid the COVID-19 crisis, and that the interest burden on vulnerable groups is increasing, there are calls for commercial banks to increase the proportion of loans to middle- and low-credit borrowers.

Assemblyman Kim Sung-joo said, "In a situation where the interest rate gap between high-credit and middle-and low-credit borrowers is widening, it is not desirable for banks to continue lending mainly to high-credit borrowers with stability and profitability," adding, "During periods of high inflation and high interest rates, financial authorities need to make efforts to increase the loan proportion for middle-and low-credit borrowers and minimize their interest burdens."

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