"Mortgage Loan Limits and Bank Stock Price Ceilings Are Separate Issues" [Click-e Stock]

Offsetting Slower Loan Growth Through Expanded Corporate Finance and Shareholder Returns
Long-term Outlook: Strengthening Asset Soundness and Higher ROE

With the government announcing measures to limit the maximum amount of mortgage loans as part of its household debt policy, the annual growth rate of household loans in the banking sector is expected to slow down. Nevertheless, some analysts believe that banks can offset these negative effects and maintain their upward stock price momentum by expanding corporate finance and shareholder returns.

On June 30, Korea Investment & Securities maintained its "overweight" recommendation on the banking sector, citing this background. The firm explained that the cap on mortgage loans and the ceiling on stock prices are separate issues.

Previously, on June 27, the Financial Services Commission announced stronger-than-expected measures to manage household debt. First, it introduced new regulations on mortgage loan limits for the Seoul metropolitan area and other regulated regions. The maximum mortgage loan amount was limited to 600 million won, regardless of income or housing price.

The management of mortgage loans for multiple homeowners was also tightened. The loan-to-value (LTV) ratio for multiple homeowners was set at 0%, effectively banning mortgage loans for both home purchases and living stabilization funds. In addition, a seven-month residency requirement was imposed for mortgage loans intended for home purchases, and "gap investment"?related jeonse loans with conditional transfer of ownership were also prohibited. The loan limit for the Housing and Urban Fund, a major driver of household loan growth, was also reduced.

As a result, the annual growth rate of household loans (including policy loans) in the banking sector is expected to drop by about 1 percentage point, from the 4% range to the 3% range. Assuming the previous growth target for household loans was 4%, with 2% from bank-originated loans and 2% from policy loans, Baek Doosan, a researcher at Korea Investment & Securities, explained, "The target for bank-originated loans in the second half has been cut in half (to 1%), and the annual target for bank-funded policy loans has been reduced by 25% (from 4%)." He added, "Given that total household loans in the financial sector amount to 1,810 trillion won, the Financial Services Commission expects this measure to reduce the annual increase by 20 trillion won."

There is also analysis that both net interest margin (NIM) and capital adequacy ratio could decline slightly. In the household loan market, supply has been relatively fixed while demand has increased, supporting higher lending spreads. However, if excess demand decreases, there will be less room for lending spreads to rise. In addition, as the guarantee ratio for jeonse loans is reduced from 90% to 80%, the risk weight for these loans will increase, leading to higher costs and provisions, and a slight decline in the capital adequacy ratio.

Despite this, the outlook for the banking sector remains positive. In the short term, the negative impact of the household debt policy on performance or corporate value is expected to be offset by expanding corporate finance and shareholder returns. In the medium to long term, the measures are seen as positive, as they support sustainable growth and asset soundness.

Baek emphasized, "Recently, the focus has been on enhancing return on equity (ROE) through appropriate risk-weighted asset (RWA) growth and expanded shareholder returns. Rather than the household debt issue, attention should be paid to the second-quarter earnings to be announced at the end of next month and shareholder return policies for the second half of the year."