[Donmaekgyeonghwa] "Can't lend money"... Savings banks' lending attitude at 'lowest' level

Savings Bank Loan Attitude in Q3 This Year -39
Lowest Record Since Statistics Began
Household Loans Difficult Due to Maximum Interest Rate Regulation
Riskier PF Loans Are Burdensome to Handle
Borrowers in Need of Money Face Increasing Liquidity Concerns

[Asia Economy Reporter Song Seung-seop] The lending attitude of savings banks has hit an all-time low. Despite the base interest rate hikes, they are unable to raise loan interest rates due to the cap on maximum interest rates, and financial authorities are strengthening management and supervision with a strict stance. Concerns are being raised that the more hesitant the secondary financial sector is to loosen lending, the greater the difficulties borrowers will face.

According to the Bank of Korea's "Financial Institution Lending Behavior Survey" released on the 21st, the lending attitude of savings banks in the third quarter of this year was -39. This is a drop of 21 points from -18 at the beginning of the year. It is the lowest since statistics began in the fourth quarter of 2013. Even during 2020 and last year, when COVID-19 and household loan volume regulations were in place, the lending attitude hovered around -20.

Lending attitude is an indicator showing how actively financial institutions are lending. It rises when loan approval standards are eased and institutions actively pursue lending, and falls when lending is managed more strictly. Since the data is collected through surveys sent to each financial company, it provides an insight into the industry's lending atmosphere.

The lending attitude of savings banks is the lowest among all financial sectors. Domestic banks recorded a lending attitude of only -6 in the corporate loan sector, while household credit loans (19) and mortgage loans (14) were active. Mutual finance cooperatives, which also have a negative lending attitude, stand at -28, card companies at -13, and life insurance companies at about -12.

Unable to Raise Loan Interest Rates Due to Regulations, PF Loan Risks Also Increasing

The reason savings banks are reluctant to lend money lies in the legal cap on maximum interest rates. The base interest rate has entered the 3% range for the first time in 10 years after the Bank of Korea raised it five consecutive times. Savings banks need to raise loan interest rates, but are held back by the '20% rule' on maximum interest rates. The loan interest rates for low-credit borrowers are already approaching 20%. Considering risks, funding costs, and labor costs, savings banks say they cannot lend money.

Problems could be solved if funds were procured cheaply, but this is difficult. Savings banks are prohibited from raising funds through bond issuance due to regulations. They must essentially rely on customers' deposits and savings. Although higher deposit interest rates than banks are essential, the gap is narrowing. The highest fixed deposit interest rate at commercial banks as of the previous day was 4.95% (12-month maturity), only 0.2 percentage points lower than the average fixed deposit interest rate of 5.15% at savings banks. Because lending operations are difficult, savings banks that have not raised deposit interest rates offer lower deposit rates than commercial banks.

It is also difficult to engage in real estate project financing (PF), which was a representative source of revenue. As interest rates and exchange rates rise, risks in construction projects increase, leading major banks to temporarily suspend PF loans. Construction project funding often starts with high-interest loans from the secondary financial sector (bridge loans), and as the project progresses, it switches to low-interest PF loans from banks. If banks do not provide PF loans, projects may collapse, making it difficult to allocate funds to PF under the current circumstances.

The financial authorities' management stance has also played a role. PF loans from the five major savings banks?SBI, OK, Korea Investment, Pepper, and Welcome Savings Banks?amounted to 2.8042 trillion won, a sharp increase of 890.8 billion won (46.6%) compared to the previous year. Due to the rapid increase, the Financial Supervisory Service inspected 1,174 PF loan sites of savings banks, and loans to 'watchlist' sites exceeded 2 trillion won. Financial Supervisory Service Governor Lee Bok-hyun also warned savings bank CEOs to "prepare for possible construction stoppages and delays at PF sites."

The 'money stagnation' phenomenon in savings banks ultimately harms borrowers who need funds. A savings bank official explained, "Household loans are difficult due to the maximum interest rate regulation, and mishandling PF loans could lead to criticism from financial authorities," adding, "In any case, the loan threshold can only be raised."