[Donmaekgyeonghwa] Savings Banks Lock Down 'Loans'... Half of Products Unavailable for Scores Below 600

Last Month's Review of 96 Major Savings Bank Loan Products
45.8% Not Approved for Credit Scores Below 600

Loan Balances Already Declining Mainly in Non-Capital Regions
Industry Says "Must Be Cautious Until First Half of Next Year"

[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] Savings banks, a major source of funds for low-income and low-credit groups, are tightening their loan taps. They are reducing the proportion of loans to borrowers with low credit, and in non-metropolitan areas, the outstanding household and corporate loans of savings banks are already decreasing. This is interpreted as a result of increased risks due to rising interest rates and a gloomy outlook for the real estate and construction market.

On the 2nd, an analysis of 96 major loan products in the industry disclosed by the Korea Federation of Savings Banks last month showed that 44 products, accounting for 45.8%, were not executed for credit scores below 600 points (grade 7). This means that about half of the loan products handled by savings banks in one month were not available to low-credit borrowers. A year ago, there were a total of 131 loan products in the industry, and about 35.8% (47 products) did not provide loans to those with credit scores below 600 points.

Among the products that did not issue loans, there were also products typically used by low-income and low-credit groups. OK Savings Bank's OK Rider Loan is a representative example. It is a credit loan product for customers working as delivery riders, but 81.64% of users were high-credit borrowers with credit scores between 701 and 900 points. Emergency loans, which borrowers in urgent need of funds often seek, were also not available to those with credit scores below 600 points at Welcome Savings Bank and Daol Savings Bank.

Savings banks, including large companies, are strengthening their loan standards without exception. SBI Savings Bank, the industry's largest by asset size, recently tightened its loan screening criteria to proceed with funding more conservatively. OK Savings Bank temporarily suspended its new mortgage loan product, Mortgage Loan, on the 25th of last month but resumed it on the 27th. It is known that the loan screening threshold was raised due to the sharp rise in the base interest rate. SangSangIn Savings Bank has practically stopped handling business mortgage loans properly since May.

Funding by savings banks is rapidly decreasing, especially in provincial cities. According to the Bank of Korea, as of August, the outstanding household loans by savings banks in the Daejeon area dropped sharply by 11.6% (81 billion KRW) in one month to 61.5 billion KRW. Earlier this year, the loan scale in the area exceeded 80 billion KRW. In the corporate loan sector, outstanding loan balances recorded negative growth in all regions except Seoul, Busan, and Gyeongnam.

This phenomenon is partly due to a decrease in loan demand caused by the sharp rise in loan interest rates following the base rate hike, but the main reason is that savings banks have strengthened their loan management policies as risks for vulnerable groups have increased. The gloomy outlook for the real estate project financing (PF) market is also a reason why the industry is reluctant to lend. As the base interest rate is expected to rise further, if the second-tier financial sector's funding supply decreases, the burden on people trying to borrow money is expected to increase further.

An official from a savings bank explained, "Most of the collateral loans handled by the second-tier financial sector are subordinated, and there are signals that the housing and construction markets could worsen further," adding, "The industry's cautious attitude toward loan execution is expected to continue until the first half of next year."