Banking Sector Tightens Loans 'Domino'... Raising Interest Rates and Reducing Limits

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] As banks take follow-up measures in response to the financial authorities' request for total household debt management, loan interest rates are rising and limits are being reduced.

According to the banking sector on the 18th, KB Kookmin Bank reduced the limits and raised the interest rates on mortgage loans and jeonse deposit loans starting from the 16th. The interest rates on mortgage loans and jeonse deposit loans each increased by 0.15 percentage points compared to before. In addition, the Debt Service Ratio (DSR) operation standard was strengthened, adjusting the mortgage loan standard from the previous 'within 100~120%' to 'within 70%'.

Under the 120% DSR standard, a borrower could get a loan of 1.5 billion KRW, but applying the 70% standard, the maximum limit becomes 800 million KRW. The DSR standard for living stabilization loans among jeonse deposit loans was also adjusted from the previous 'within 100%' to 'within 70%'. Furthermore, the maximum limit for unsecured loans was restricted to within the annual income.

Earlier, Woori Bank limited the maximum amount of personal unsecured loans to within the annual income starting from the 15th. This limit applies to eight products including 'Woori Wonhaneun Office Worker Loan' and 'Woori Main Office Worker Loan'. Relatively low-interest mortgage loans and jeonse loans based on the new balance COFIX have also been temporarily suspended. Shinhan Bank raised the additional interest rate on jeonse loans by 0.2 percentage points earlier this month and adjusted the maximum limit on unsecured loans to 100% of annual income starting from the 10th.

The tightening of loans is spreading beyond the banking sector. The Financial Services Commission recently held a household debt management inspection meeting with Hyundai Card, Lotte Card, and the Credit Finance Association, urging card companies to strengthen loan management. As commercial banks tighten loans, the financial authorities are closely monitoring the possibility of a 'balloon effect' where loans increase in the secondary financial sector, including card loans.

Financial Services Commission Chairman Ko Seung-beom maintains a tough stance on total household loan management while extending the COVID-19 financial support program. He insists that supplementary measures will be implemented if additional regulations are necessary. After a meeting with the chairpersons of the five major financial holding companies held on the 10th in Myeong-dong, Jung-gu, Seoul, Chairman Ko told reporters, "Regarding additional household loan regulations, we will prepare supplementary measures after observing various situations following Chuseok," adding, "We are continuing detailed reviews on 20 to 30 items at the practical level."