As Loan Approval Narrows, Frustrated Commoners... Only 'No-Action Watching' Increases

Loan and Inquiry Growth Rates Surpass Approval Growth Rate
Profitability Decline Leads to Continued Tightening by Yeojunsa and Savings Banks
Interest Rates Raised and Loan Products Reduced

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] #Ko Hyungbeom (39), who runs a small business, has recently been logging into loan brokerage platforms every day. He needs a lump sum of money soon and is checking if there are any products with even slightly lower interest rates. Ko said, "In the past, various savings bank products appeared, but recently, not only are the interest rates high, but the number of products available for inquiry has also decreased," adding, "It's very frustrating because payments from clients are delayed and funds are tied up."

In this era of high interest rates, companies such as savings banks, credit card companies, and capital firms are tightening their loan policies, increasing consumer anxiety. Not only have the number of loan products decreased, but the interest rates have also risen, leaving consumers searching daily for even slightly lower rates.

Loan Products Decrease and Interest Rates Rise... Anxiously Checking Only

According to the industry on the 6th, the number of loan limit inquiries on the loan brokerage platform Finda in the second half of last year was about 3 million, a 63.8% increase compared to the same period the previous year. As interest rates sharply rose toward the end of the year, the number of people checking loan limits increased. Users who rechecked loan interest rates and limits within a month in the third quarter surged by 82% compared to the first quarter.

However, the increase in approved loans that actually led to borrowing lagged behind. The number of approvals in the second half of 2022 rose by 37% compared to the same period the previous year, only about half the rate of increase in inquiries. This indicates that many people anxiously check but hesitate to apply for loans because there are no suitable products.

Recently, capital firms and savings banks have been locking down loans one after another. Hyundai Capital stopped new loan operations on platforms such as Toss, KakaoBank, KakaoPay, and Finda last month. Savings banks are doing the same. SBI Savings Bank, the industry leader, halted unsecured loans; Welcome Savings Bank stopped mid-interest rate loans; and Shinhan Savings Bank suspended the Sunshine Loan last month. Loan companies have also reduced new loans compared to before or increased the proportion of secured loans over unsecured loans.

Credit Finance Industry Shrinks Amid Profitability Concerns

The reason for this tightening is concerns over worsening profitability and even 'negative margins.' This is especially true for credit card companies and capital firms, which are specialized credit finance companies. Since they cannot conduct deposit-taking operations, about 70% of their loan business funds are raised through specialized credit finance bonds (credit finance bonds). However, with fears of an economic downturn freezing the bond market, the interest rates on these bonds remain at high levels. According to the Korea Financial Investment Association's Bond Information Center, as of the 4th, the 3-year credit finance bond (AA+) rate was 5.336%. Although this is 0.652 percentage points lower than the record high of 6.088% on November 7 last year, it still more than doubles the early last year's level of around 2.4%. In particular, credit card companies face a crisis as 33 trillion won worth of card bonds mature this year, forcing them to refinance bonds originally issued at around 2% interest at rates of 5-6%. This is why they are raising various fees and loan interest rates to secure profitability.

Savings banks are also facing difficulties. As commercial banks raise deposit interest rates and absorb large amounts of market funds, savings banks have no choice but to raise their deposit rates more steeply, increasing funding costs. Because of this, they are increasingly stopping handling low-profit policy financial products such as the Sunshine Loan and reducing loans to low-credit borrowers. An industry insider said, "The cold wave is expected to continue for the time being," adding, "Both consumers and companies will have no choice but to tighten their belts."