Concerns Growing That Other Banks May Implement Similar Measures
[Asia Economy Reporter Park Sun-mi] "I need to get a mortgage loan in October, but NH Nonghyup Bank, my main bank, is completely stopping new loans, so I am worried. I am also concerned that other banks might stop as well."
"The autumn moving season is just around the corner, but it feels like the ladder to owning my own home has been kicked away. Is there anyone who can buy a house with 100% cash?"
As Nonghyup Bank decided to fully suspend new mortgage loans, real buyers on real estate online communities are pouring out their complaints, fearing funding problems ahead of the autumn moving season. Since the government and financial authorities are pressuring to strengthen household loan management, fear is spreading that other banks will soon take similar measures.
On the 20th, at Nonghyup Bank’s Yeouido branch, where many office workers gather, and other branches, inquiries about the suspension of mortgage loans flooded in immediately after business hours started at 9:30 a.m. Nonghyup Bank plans to suspend mortgage loans, including non-residential loans such as land and forest land, as well as new loans, increases, and renewals, from October 24 to November 30. Most people at branch counters asked until when they could apply for loans to receive them, and what documents and procedures they should prepare in advance to get a loan. Some also asked whether group loans for interim payments on new apartments fall under the full suspension scope.
The situation at other banks was similar.
Rumors spread mainly on online communities that loans from other banks would soon face difficulties, leading to a flood of inquiries about the possibility of loan suspensions in the future. Especially among those planning their funding ahead of the autumn moving season, anxiety is spreading that they must secure funds in advance amid a series of loan regulations, including the suspension of commercial bank loans, the application of a 40% Debt Service Ratio (DSR), increases in mortgage loan variable interest rates, reductions in preferential interest rate margins, and cuts in credit loan limits.
An official from a bank said, "If loans are blocked at Nonghyup Bank, a ‘balloon effect’ will occur as people flock to other commercial banks and secondary financial institutions, so the entire financial sector is closely monitoring the impact of this decision."
Since Nonghyup Bank’s loan suspension was a sudden decision made through internal discussions, financial authorities are also trying to understand the situation. The Financial Services Commission plans to convene Nonghyup Bank and the National Agricultural Cooperative Federation at 11 a.m. on the same day to exchange opinions on this loan suspension decision and household loan management plans.
Nonghyup Bank’s household loan growth rate from January to July this year was 7.1%, already exceeding the government’s annual target of 5-6%. Since the growth rate is significantly higher than other banks, it was necessary to receive a plan on how to comply with the promised annual household loan target. Also, since Nonghyup Bank’s mortgage loan suspension is an extreme measure, discussions are needed to prevent market instability and adverse effects on real loan demand.
In the industry, the dominant view is that additional loan regulations are inevitable as financial authorities increase pressure on household debt management across the entire financial sector, including banks. Currently discussed measures include expanding the application of DSR regulations, reducing credit loan limits to ‘annual salary levels,’ expanding checks on mortgage loan contract violations, and loan recalls through these checks.
However, with the resurgence of COVID-19 and the U.S.’s early tapering (asset purchase reduction) moves increasing uncertainty about our economy, if household loans are suddenly blocked, it could cause side effects that block real buyers’ access to the housing market. Since many self-employed people use mortgage loans for living expenses or store operation costs, there are concerns that this could lead to increased livelihood burdens for ordinary people.
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