Household Loans Increased by 2.3 Trillion Won in November... Financial Supervisory Service Says "Growth is Slowing"

Published 30 Nov.2023 15:42(KST)

Amid the continued increase in household loans, financial sector household loans in November rose by 2.3 trillion won compared to the previous month.

On the morning of the 30th, Lee Junsu, Deputy Director of the Banking and Small Business Division at the Financial Supervisory Service (FSS), stated at a press briefing, "The increase in household loans in the banking sector is expected to continue a gradual decline in December following November," adding, "We will continue to manage household debt until the household debt-to-GDP ratio recovers to an appropriate level."

The FSS explained that of the 4.8 trillion won increase in bank mortgage loans in November, 3.7 trillion won were policy loans, mostly funds for actual demand borrowers.

The FSS forecasted that due to strengthened household loan management and the suspension of the special Bogeumjari Loan general type, the increase in household loans in December will continue a gradual decline following November. In particular, year-end bonuses and write-offs related to settlement are expected to act as factors reducing other loans such as unsecured loans in December.

As a result of on-site inspections conducted by the FSS from August to last month targeting 16 banks handling household loans, most banks processed the launch of 50-year maturity mortgage loans through department head approval without review by product committees or related committees. At Bank A, although the risk department expressed concerns about expanding interest rate risk and difficulties in duration management, the plan proceeded according to the sales department's opinion.

It was found that many banks were aware in advance that the 50-year maturity product could be a means to circumvent or avoid the Debt Service Ratio (DSR), as they specified the purpose of extending the maximum maturity as "enhancing sales competitiveness" or guided its use as a sales tool at branches. Additionally, many banks set key performance indicators (KPIs) that directly or indirectly linked household loan expansion to performance, and some banks confirmed that these results were connected to personnel compensation.

Bank household loan interest rates showed a downward stabilization trend after the Bank of Korea's last rate hike in January this year but have been gradually rising along with market interest rates since August. Deputy Director Lee said, "The stability of loan interest rates until July was mainly due to market interest rates (1-year bank bonds) remaining lower than at the beginning of the year and the expansion of low-interest policy fund loans," emphasizing, "Efforts such as win-win finance or voluntary support for vulnerable borrowers by banks cannot be seen as the main factors for the downward stabilization of loan interest rates."

Regarding win-win finance, Deputy Director Lee explained, "It is not desirable to distort the loan interest rate system and market interest rates through win-win finance," adding, "The reason why interest rate coupon formats are currently being discussed as a win-win finance measure in the banking sector seems to be to avoid increasing loan demand."

As of the end of September, corporate loans across the entire financial sector amounted to 1,843.3 trillion won, an increase of 4.8% (83.6 trillion won) compared to the end of last year. Factors contributing to the increase in corporate loans include reduced corporate bond investment demand due to high interest rates, increased funding demand amid economic uncertainty, and expanded investment demand related to new industries such as secondary batteries. The FSS stated, "Although the corporate loan delinquency rate has been on the rise since the second half of last year, it is still at a low level compared to the past," and added, "The financial sector is strengthening soundness management efforts by enhancing loss absorption capacity in preparation for deteriorating debt repayment ability of client companies and by early write-offs and sales of non-performing loans."