Financial Supervisory Service Summons Former Bank Vice Presidents
Announces On-Site Inspections for Household Loans
Emphasizes Non-Price Measures for Managing Mortgage Loan Maturities
Financial regulatory authorities have once again summoned former bank vice presidents to urge voluntary management. As a result, it is expected that for the time being, banks across the country will not offer 40-year maturity mortgage loan products. In addition, on-site inspections will be conducted on household loan screening, including "jeonse loans with ownership transfer conditions," which were suspended to prevent gap investment.
According to financial authorities and the financial industry on June 16, the Financial Supervisory Service convened a closed-door meeting at 3 p.m. at its Yeouido headquarters, summoning vice presidents in charge of household loans from 20 banks and requesting cooperation in the voluntary management of household loans.
At the meeting, Park Chunghyun, Deputy Governor for Banks at the Financial Supervisory Service, emphasized to the banks the importance of managing household loans voluntarily through "non-price measures." This means that banks should not suppress loan demand by raising additional interest rates, but rather manage the total amount of loans through loan screening or loan methods.
The most representative example is the reduction of mortgage loan maturities. Previously, some commercial banks had extended maturities to 40 years. When loan maturities are extended, the burden of principal and interest repayment decreases, which increases borrowers' capacity for loans. As housing prices have soared recently and household loans have surged, banks plan to reduce mortgage loan maturities back to 30 years. Shortening loan maturities increases the repayment burden, which in turn leads to adjustments in loan amounts.
The Financial Supervisory Service also plans to inspect the status of voluntary management reported by banks at the beginning of the year. It will examine whether there have been any cases where loans were approved by circumventing regulations such as gap investment. Major commercial banks have suspended "jeonse loans with ownership transfer conditions" in Seoul to prevent their use for gap investment and have tightened conditions such as "trust registration cancellation." The Financial Supervisory Service plans to conduct both written and on-site inspections to ensure these measures are being properly implemented.
The reason the Financial Supervisory Service is frequently summoning bank vice presidents is that it believes loan management is currently the only means to immediately curb the overheated rise in Seoul housing prices. Real estate supply measures are mid- to long-term policies, and tax regulation options cannot be implemented right away, so the authorities intend to control loans to dampen the real estate boom.
In fact, household loans across all financial sectors surged by 6 trillion won in May compared to the previous month. This is the largest increase in seven months since the 6.5 trillion won rise in October last year. Household loans this month are also significant. For the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), the outstanding balance of household loans from June 1 to 13 increased by 2.7609 trillion won compared to the previous month.
However, the banking sector expects the rapid increase in household loans to subside somewhat after July. A vice president from one of the five major commercial banks explained, "Some banks lowered their additional interest rates following the base rate cut in February, which led to increased loan demand and a rise in household loans, or a surge in group loans contributed to the increase in household loans."
He added, "Since it takes one to two months from loan screening to approval for mortgage loans, the surge in loans is expected to slow down starting in July."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
