'Loan Cliff' Spreads Across the Board... Insurance Companies and Savings Banks Also Halt New Loans (Comprehensive)

DB Insurance Halts Personal Loans
Pepper and Korea Investment Savings Bank Also Stop Loan Product Sales

Financial Firms Anticipate Strict Loan Regulations
Additional Loan Suspensions Expected

[Asia Economy Reporters Hyungil Oh, Seungseop Song] The lending cliff is spreading across the entire financial sector.

Following NH Nonghyup Bank and regional agricultural and livestock cooperatives, mutual finance institutions, insurance companies, and savings banks have also begun to halt new loans one after another. With Ko Seung-beom, the Financial Services Commission chairman known as a strong 'hawk,' announcing even tighter credit tightening policies, there is a high possibility that more financial companies will join the cautious standoff. Some critics argue that as the loan suspension spreads simultaneously, actual borrowers are becoming scapegoats.

According to the financial industry on the 3rd, DB Insurance decided to suspend new personal credit loans from the 1st until December 31. As of the end of June, DB Insurance's personal credit loans stood at 315.7 billion KRW, an increase of only 5 billion KRW from 310.7 billion KRW at the end of last year, but policy loans have noticeably increased.

During the same period, insurance policy loans rose from 2.8762 trillion KRW to 2.9143 trillion KRW. Mortgage loans also increased from 894.7 billion KRW to 1.0862 trillion KRW, raising the total household loans. A DB Insurance official explained, "The temporary suspension was to control the growth rate compared to the previous year according to our household loan management plan and to comply with the government's household loan policy."

Other insurance companies are also expected to suspend personal credit loans. This is because the household loan volume in the insurance industry has been continuously increasing due to the low-interest-rate environment. The total household loans of the life and non-life insurance industry reached 123.12 trillion KRW at the end of last year. In the first quarter, it increased by about 1.73 trillion KRW to 124.85 trillion KRW in just three months.

Also, as of the first half of the year, insurance policy loans of the top nine insurance companies increased by an average of about 3.1% compared to the first half of last year. This is because demand has extended from low-interest-rate bank loan products to insurance policy loans recently.

An insurance industry official said, "Insurance companies that have increased real estate loans cannot ignore regulatory scrutiny," adding, "At least by suspending personal credit loans, they can proactively manage the total loan growth rate."

The Financial Supervisory Service requested insurance companies through the Life and Non-Life Insurance Associations to limit personal credit loan amounts to annual income following the Bank of Korea's base rate hike. This was to prevent a balloon effect where blocked loan demand in the banking sector would shift to the secondary financial sector. Accordingly, insurance companies have reduced credit loan limits and introduced additional measures to strengthen loan document screening.

Savings banks are also suspending loan services one after another. Pepper Savings Bank has temporarily suspended the sale of some personal credit loan products. Pepper Savings Bank has handled personal credit loans such as Pepper Direct Loan (6.9%~19.4%), Pepper Direct Loan 2 (6.9%~19.9%), and Pepper Roo 300 (6.9%~8.0%).

Korea Investment Savings Bank recently stopped selling the 'Home Jeonse Loan 2 (rental apartment mortgage loan)' product, which had been available until last month. It was a fixed-rate loan product with an annual interest rate of 3.72% to 8.49%, offering up to 300 million KRW.

OK Savings Bank also ended sales of four products, including the Miz Sarang Housewife OK Loan, following the OK Interest Rate Preferential Loan in May. Although the company explained it was a strategic decision, concerns are rising that consumer confusion will accelerate due to the loan suspension across the financial sector.

A savings bank official said, "We are indeed under strong regulatory pressure, but if we reduce or suspend products due to regulations, we will also face criticism from authorities," adding, "Rather than stopping supply, we plan to focus on providing mid-to-low credit (mid-interest rate) loan products in the market that are not subject to total volume regulation."

Earlier, NH Nonghyup Bank completely suspended household real estate mortgage loans from the 24th until November this year, and from the 27th, regional Nonghyup and livestock cooperatives were the first to fully halt mortgage and jeonse loans.