'Savings Banks with "Profitability Red Light" Seek Solutions through Interim Payment Loans'

Increase in Mid-term Loan Handling from 14 to 18 Institutions
Demand Arises for Savings Banks Due to Decrease in Primary Financial Institutions
"Growth in New Mid-term Loan Volume"
Safer Collateral Compared to Real Estate PF Loans Attracts Borrowers

Savings banks, having lost their core revenue source due to the contraction of the real estate project financing (PF) market, are turning their attention to interim payment loans.

According to the Korea Federation of Savings Banks on the 14th, out of a total of 79 savings banks, 18 were handling interim payment loans as of June this year. This is an increase compared to 14 banks in December last year. The group includes major companies such as OK, Korea Investment, Aequan, and Moa, as well as small and medium-sized savings banks like Inseong, Geumhwa, and Heungkuk.

Interim payment loans were mainly handled by first-tier banks during the boom in the subscription market. However, as unsold units increased from the second half of last year, banks raised the threshold for interim payment loans to manage risks. The balance of group loans (including interim payment loans) from the five major commercial banks has been steadily decreasing from 163.197 trillion won in February this year to 162.3863 trillion won in March, 162.0978 trillion won in April, 161.1812 trillion won in May, and 160.7419 trillion won in June.

Prospective buyers, finding it difficult to obtain interim payment loans from banks, have turned to savings banks. A financial industry official explained, “Originally, interim payment loans did not extend to savings banks, but as banks became passive, savings banks found room to enter,” adding, “Since savings banks also lack suitable lending targets, they are slightly lowering interim payment loan interest rates to attract customers.” As of June this year, the average interest rate for savings banks handling interim payment loans is in the 7% range annually, but BNK, Aequan, Dongyang, and Yuanta Savings Banks are offering loans at annual rates of 3-4%, which is not significantly different from the 4.5% level of commercial banks.

The industry is also responding that the volume of interim payment loans itself is increasing. A representative from a large savings bank said, “It is difficult to disclose specific figures for interim payment loans, but they have been steadily increasing recently.” Another industry official also stated, “While the industry is fundamentally focusing on risk management, they cannot just stand by, so they are gradually increasing new interim payment loans after rigorous screening.”

Payments for apartments, houses, and commercial buildings during sales are divided into down payments, interim payments, and final payments, with interim payments accounting for about 60%, the largest portion, so they are often paid through group loans. The developer signs a separate agreement with a financial institution, and prospective buyers receive loans from that institution. Since interim payment loan interest rates are independently determined by financial institutions considering factors such as project scale, developer and contractor creditworthiness and construction capability, and sales potential, there is variation.

The savings bank industry's focus on interim payment loans is interpreted as a breakthrough following the loss of their main income source due to the suspension of real estate PF projects. They significantly reduced new real estate PF loans from the second half of last year as the real estate market tightened. As of the end of March this year, the balance of savings banks' real estate PF loans was 10.1 trillion won, down 400 billion won from 10.5 trillion won at the end of last year. PF loans are products where money is lent based on the feasibility and future cash flow of real estate development projects without collateral, so they carry significant soundness risks. However, interim payment loans are considered safer compared to PF loans because they have definite collateral such as pre-sold houses. An industry official said, “Interim payment loans are focused on because they are considered safe, as they are only available for projects that have received completion permits.”

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