Secondary Financial Sector Loans 'Stirring'... Financial Authorities Significantly Strengthen Daily and Weekly Monitoring

Mortgage loans updated daily, overall loan status weekly
Household loan size tracked by application and receipt dates
Concerns of balloon effect in secondary financial sector as banks tighten regulations

As the threshold for household loans in the banking sector rises, concerns have grown that the so-called 'balloon effect' could materialize in the secondary financial sector, prompting financial authorities to strengthen monitoring of household loans in the second-tier financial institutions. The financial authorities have implemented a system to receive daily status reports focusing on mortgage loans in the secondary financial sector, while also tracking the overall loan status, including unsecured loans, on a weekly basis.

According to the financial sector on the 13th, the Financial Services Commission has been receiving daily and weekly credit data from the secondary financial sector, including insurance, card companies, capital companies, savings banks, and mutual finance institutions. Mortgage loan data is delivered daily, and overall loan data, including unsecured loans, is requested and analyzed on a weekly basis.

Unlike before, the basic data is now being tracked based on loan application and receipt criteria. Previously, the Financial Services Commission assessed the scale of household loans based on outstanding loan balances, but recently, they have been checking information based on both outstanding balances and application/receipt criteria.

The financial authorities' strengthening of household loan monitoring in the secondary financial sector is interpreted as a measure to quickly identify and respond to the so-called loan balloon effect. Under pressure from financial authorities to manage household debt, commercial banks have raised loan thresholds across the board, such as suspending mortgage loans for multi-homeowners or conditionally restricting jeonse (long-term deposit) loans. As banks tighten lending so strongly, some borrowers with genuine loan needs have started turning to the secondary financial sector, where interest rates are relatively higher than those of commercial banks.

In fact, according to the 'Financial Market Trends in August' announced by the Financial Services Commission on the 11th, household loans in the secondary financial sector have returned to an increasing trend. Last month, household loans in the secondary financial sector increased by 300 billion KRW in mortgage loans and 200 billion KRW in other loans, marking a shift to growth compared to the previous month. Household loans by insurance companies increased by 300 billion KRW compared to the previous month, also turning to growth, while credit specialized financial companies such as card and capital companies (700 billion KRW) and savings banks (400 billion KRW) maintained their upward trend.

Contrary to the financial authorities' intentions, if loan demand rises again, the risk of the balloon effect intensifying cannot be ruled out. According to data extracted by Asia Economy from the loan brokerage fintech company Finda, the number of mortgage loan limit inquiries in the secondary financial sector was 73,848 in the first week of August (from July 29 to August 4), but increased to 74,438 in the second week, 80,920 in the third week, 87,574 in the fourth week, and surged to 88,991 in the last week. This represents an increase of about 15,000 inquiries over the month.

Professor Seo Ji-yong of Sangmyung University said, “If loans in the primary financial sector are suspended, borrowers have no choice but to look for places where loans are available,” adding, “There is a possibility that borrowers will flock to places in the secondary financial sector, such as insurance companies, where loans can be obtained.”

Lee Bok-hyun, Governor of the Financial Supervisory Service, is attending and speaking at the on-site meeting for household loan borrowers and experts held at KB Kookmin Bank in Yeouido, Seoul, on the 4th. Photo by Jo Yong-jun jun21@

The Financial Supervisory Service has demanded household debt management across the entire financial sector, beyond just banks. At a meeting with household debt borrowers and experts on the 4th, Financial Supervisory Service Governor Lee Bok-hyun said, “Recently, the speed of loan information circulation has increased, raising concerns about the balloon effect where loan demand shifts between financial companies,” and urged, “It is necessary for the entire financial sector, including banks, insurance, and small financial institutions, to work together in managing this.”

Kim Byung-hwan, Chairman of the Financial Services Commission, held his first press conference since taking office on the 12th and said that household loans in the banking sector increased by 1.1 trillion KRW over five business days in September, which is about half the increase during the same period in August. He added, “As housing prices rise, demand for home purchases may appear, so I think it is necessary to control such aspects, including the balloon effect.”

He also said, “We will closely monitor the shift of demand to the secondary financial sector and maintain the management stance, while checking whether any movement toward illegal private loans occurs.”