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[Asia Economy Reporter Jo Gang-wook] Domestic commercial banks are intensifying restrictions on unsecured loans by raising interest rates and lowering limits. The rush to open overdraft accounts just before the regulations take effect has surged.
According to the financial sector on the 26th, KB Kookmin Bank will simultaneously lower household unsecured loan limits and raise interest rates starting from the 29th.
Accordingly, unsecured loans for professionals will be reduced from the current maximum of 400 million KRW to 200 million KRW, and the KB Workplace Reliable Unsecured Loan limit will decrease from 300 million KRW to 200 million KRW. The maximum limit for the non-face-to-face KB Star Unsecured Loan has also been cut in half from 300 million KRW to 150 million KRW. Preferred interest rates have also decreased, resulting in an overall increase of 0.1 to 0.15 percentage points in unsecured loan product interest rates.
Woori Bank will also lower the maximum preferential interest rate for its main unsecured loan product, 'Woori Main Workplace Loan,' starting from the 6th of next month. Among the existing preferential interest rate items, the 'Utility Bills and Maintenance Fees' (0.1 percentage points) based on Woori Bank usage performance has been removed, and the preferential interest rate for the borrower's affiliated company has been reduced from a maximum of 0.6 percentage points to 0.3 percentage points. The 0.1 percentage point event-based preferential interest rate granted for new recruitment of employees from excellent companies has also been eliminated. As a result, the maximum preferential interest rate has been cut by 0.5 percentage points annually, and simultaneously, the overall unsecured loan interest rate has increased by 0.5 percentage points annually.
Earlier, KakaoBank raised the minimum interest rate for workplace unsecured loans from 2.01% to 2.16%, an increase of 0.15 percentage points, effective from the 25th. A KakaoBank official stated, "The interest rate increase for workplace unsecured loans was made to manage asset soundness."
K Bank also raised interest rates for unsecured loans and overdraft accounts by 0.10 percentage points and 0.20 percentage points respectively from the 18th, bringing the minimum rates to 2.11% and 2.61%.
The series of interest rate hikes by banks is interpreted as a response to financial authorities' demands to slow down the pace of unsecured loans. Previously, the Financial Supervisory Service instructed banks on the 14th to submit 'unsecured loan management plans by the 25th.' Financial companies have begun self-management accordingly.
As banks tighten unsecured loans, the rush to catch the 'last train' has also surged. According to the Financial Services Commission, the increase in unsecured loans in the financial sector last month reached 6.2 trillion KRW. This is 2.8 trillion KRW more than the 3.4 trillion KRW increase during the same period last year. The increase in unsecured loans in the financial sector was only 200 billion KRW in January this year but surged to 3.7 trillion KRW in June and 4.2 trillion KRW in July. Especially during the three days from the 21st to the 23rd of this week, the outstanding balance of unsecured loans at these five banks increased by as much as 1 trillion KRW. This is similar in scale to the surge in unsecured loan balances during the same period from the 14th to the 16th.
The financial authorities plan to review the loan reduction plans submitted by banks, supplement some parts, and provide guidelines. This unsecured loan reduction plan is expected to be implemented after the Chuseok holiday.
A financial sector official said, "We are internally reviewing adjustments to preferential interest rates based on salary transfers, savings subscriptions, and card usage performance after Chuseok."
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