Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Tightening loan regulations drives market into further confusion
Financial Services Commission (FSC) Chairman Eun Sung-soo speaks during a briefing at the Government Complex in Seoul on Jan. 19. Yonhap
By Lee Min-hyung
By Lee Min-hyung
Households' fear is expected to escalate over the government's implementation of additional loan regulations. Experts argue this will keep distorting the loan market amid the leveraged investment boom in an era of ample liquidity.
Households have for years shown a pattern of taking out excessive loans right after financial authorities announce plans to impose tougher loan restrictions.
This year was no exception, with the Financial Services Commission (FSC) hinting at introducing a new non-collateral (credit) loan regulation in the name of stabilizing the housing market. Watchdogs view households' rising credit loan balance as a sign of overheating in the housing and stock markets.
According to data from the nation's top five banks, their credit loan balance surged by 736.1 billion won in only two days from Jan. 19 when the FSC announced the regulation, under which households are forced to pay an equal amount of the principle of their credit loans each month along with interest. So far, they only pay interest on credit loans first.
Given the seasonal factor, the steep rise in credit loans is exceptional. The credit loan balance generally declines sometime in the beginning of a new year, as companies offer special year-end bonuses.
Details over the restriction have not been finalized. The watchdog plans to share them sometime around March, so the loan market confusion will remain in place until then. Even if the FSC plans to offer a grace period after the detailed plan is announced, households will keep feeling a sense of uneasiness over the looming challenge in obtaining loans.
Kang Sung-jin, an economics professor at Korea University, remained pessimistic over whether the multiple credit loan regulations will help stabilize the housing market in the long run.
“The government is advised to place more focus on stabilizing the overall economy, rather than sticking to introducing a new set of loan regulations,” he said. “The purpose of the regulations is understandable, but this is a move to defy the rules of the market. Banks offer credit loans only after taking into account households' ability for repayment.” He argued the government's intervention in the process is not desirable.
As chances remain slim that authorities will back away from its years-long stance to keep tightening loan regulations, most commercial lenders are showing signs of reducing their line of loan products targeting households.
Internet-only lenders ― such as Kakao Bank and K bank ― will be hit harder by the toughening regulations than other major commercial lenders, as the mobile banks rely heavily on the lending margin from credit loans.
Last week, Kakao Bank cut down the maximum amount of its credit loans targeting workers in the high-income bracket to 100 million won from 150 million won.
K bank is also on track to increase interest rates of its credit loans in line with authorities' growing pressure on banks to control the rapid rise of household lending.
“The so-called big conglomerates ― such as Shinhan, KB and Woori ― have diverse business portfolios not just in banking,” a bank industry source said. “They will be less affected by the government's tightening restriction on household lending, but this is not the case for internet-only lenders whose cash cow business lies in the loan-deposit margin from individual customers.”