Decrease in Secondary Financial Sector Lending... Credit Freeze Hits Mutual Finance Institutions by Year-End

Tighter Household Loan Regulations
Prudential Management Restricts Corporate Lending Expansion
Mutual Finance Sector Also Locks Down Mortgage Loans

As household loan regulations are being tightened, the total outstanding loans in the secondary financial sector have decreased across the board. This trend appears to be influenced by the financial authorities’ total loan management and concerns over asset quality, which have made it difficult to significantly increase corporate lending. Mutual finance institutions are also raising the bar for mortgage loans as the end of the year approaches, signaling the onset of a full-fledged credit freeze.

Decrease in Secondary Financial Sector Lending

According to the Bank of Korea’s Economic Statistics System on November 18, the outstanding loans of mutual savings banks as of the end of September stood at 93.4323 trillion won. This represents a decrease of 833.7 billion won compared to the previous month (94.266 trillion won).

The outstanding loans of credit unions also dropped by nearly 1 trillion won, falling by 996.7 billion won to 108.2859 trillion won at the end of September, compared to 109.2826 trillion won at the end of the previous month. A similar trend was observed at Saemaul Geumgo, where outstanding loans decreased by 331.9 billion won to 182.38 trillion won, down from 182.7119 trillion won the previous month. However, considering that household loans at Saemaul Geumgo increased by about 700 billion won in September, the reduction in outstanding loans appears to be due to a decline in corporate lending and the sale of bonds.

The decrease in lending in the secondary financial sector is interpreted as the result of several factors: the strengthening of household loan regulations by financial authorities, and the difficulty in aggressively expanding large-scale corporate loans due to asset quality management requirements. A representative from a secondary financial institution explained, “Joint loans and infrastructure loans are large in amount, but due to the current focus on asset quality management, it is difficult to proceed with lending as we did in the past.”

Institutions are also making efforts to lower delinquency rates. The delinquency rate at credit unions reached 8.36% at the end of June, the highest since June 2009 (8.3%), but by the end of September it had dropped to the low 7% range. The goal is to bring it down to the 6% range by year-end. Saemaul Geumgo also saw its delinquency rate soar to 8.37% at the end of June, but reduced it to 6.78% by the end of September, aiming for the 5% range by year-end.

Year-End Credit Freeze in Mutual Finance Becoming Reality

Mutual finance institutions have also begun to tighten household lending in earnest. With financial authorities requiring compliance with the household loan growth target, institutions are now adjusting new loan issuances.

The National Credit Union Federation of Korea has decided to suspend new household loans to non-members from November 20 until the end of the year. Under the Credit Union Act, credit unions may only lend up to one-third of their total loans to non-members. Last month, credit unions completely suspended mortgage loans and non-face-to-face mortgage loans via loan brokers, and plan to maintain this suspension through year-end.

Saemaul Geumgo also exceeded its household loan growth target and has banned mortgage loans through loan brokers, while the maturity for final payment loans has been uniformly reduced from 40 years to 30 years, regardless of region.

A representative from a mutual finance institution commented, “Since the financial authorities have recommended that we control the growth of household loans, each institution is monitoring the trend and making adjustments on its own. As we are managing new loans based on the volume of loans being repaid, there is not much room for additional lending.”

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