Next Year's Growth Rate Discussed at 7-8%
"Refinancing Loans Should Be Excluded from Consideration"
[Asia Economy Reporter Kiho Sung] As financial authorities have expressed their intention to consider excluding loans to low- and medium-credit borrowers from next year's total household loan volume management, internet-only banks are unanimously welcoming the move. However, there are also concerns that the currently discussed growth rate for next year's total volume management is too low and could negatively impact internet banks that are just starting out, leading to calls for more proactive policies such as excluding refinancing loans (loan switching) from the total volume management.
According to the financial sector on the 6th, Financial Services Commission Chairman Seung-beom Ko recently stated at a press briefing, "We may consider excluding loans to low- and medium-credit borrowers and policy-based financial products for low-income households from next year's total household debt limit," adding, "We will finalize the specific measures within this month."
The financial authorities introduced such measures because they judged that the strengthening of household debt management was causing difficulties in loans to low- and medium-credit borrowers. In particular, internet banks were in a difficult situation due to total volume management, even though they must increase the proportion of loans to low- and medium-credit borrowers by more than 20% as promised with the government. According to the Korea Federation of Banks, as of the third quarter, loans to low- and medium-credit borrowers by internet banks were in the 10% range, about half of this year's target. Furthermore, there are concerns that achieving the target is becoming even more difficult as the financial authorities have set next year's household loan total volume management target lower at 4-5%, compared to 5-6% this year.
Internet banks are welcoming the authorities' measures. Excluding loans to low- and medium-credit borrowers from total volume management has been a consistent request from internet banks. A representative from an internet bank said, "If total volume management is further reduced, it would have been practically difficult to achieve the mid-20% target for loans to low- and medium-credit borrowers next year," adding, "There is a sense of relief that Chairman Ko has proposed a new solution."
However, the fact that the currently discussed total volume management target for next year is lower than expected is a concern. According to the industry, the total volume management target for internet banks next year is likely to be around 7-8%. However, internet banks worry that if the household loan total volume target is set at 7-8%, it will significantly restrict their growth. Considering the scale and foundational strength of internet banks, this level is considered too low. For savings banks, which also need to increase loans to low- and medium-credit borrowers like internet-only banks, an increase rate of 10-14% is being discussed for next year.
Internet banks are calling for active promotion of refinancing loans to reduce the burden on low-income borrowers related to loans. A representative from an internet bank said, "Refinancing loans do not increase new loans, and they benefit borrowers by reducing interest costs," adding, "Since a refinancing loan platform is scheduled to be launched next year, it would be preferable to exclude refinancing loans from total volume regulation."
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