Kang Seung-woo is the Business Desk editor at The Korea Times. Prior to this position, he covered politics, national affairs, finance and sports.
Shinhan Bank promotes fixed-rate housing loans
By Kang Seung-woo
By Kang Seung-woo
Amid growing concerns over increasing household debt, Shinhan Bank is bolstering the government’s efforts to tackle the mounting debt problem as the lender has focused on promoting a fixed-interest rate housing loan.
Since April, Shinhan, headed by President Seo Jin-won, has offered a mortgage with low fixed-interest rates.
The property-backed loans are subject to fixed-interest rates between 5 and 5.8 percent per year until maturity or for a certain period of time, either three years or five.
The product is in line with the government’s plan to put a lid on the nation’s escalating household debt.
According to the Bank of Korea (BOK), less than three years after surpassing 500 trillion won ($462.5 billion), the debt amassed by Korean households reached a new high of 801.4 trillion won as of the end of the first quarter of this year.
Disturbed, Seoul stepped in to help curb soaring household debt on June 29, unveiling plans to encourage local financial firms to extend home-backed loans with fixed lending rates. The Financial Services Commission (FSC) also plans to encourage more households to mend the practice of only repaying interest on their mortgages without paying the principal during a grace period. Currently, around only 5 percent of home loans are extended this way, but the FSC aims to raise the figure to 30 percent by 2016.
The bulk of banks’ mortgages are extended with floating lending rates, which require households to repay only the interest for a certain period, exposing them to more risks when interest rates are on the rise.
“Amid recent interest rate fluctuation, large portions of home equity loans are extended with floating rates and it weighs on the household economy,” said an official of the bank.
“The existing fixed-rate housing loans have been offered at high interest rates, so customers have relied heavily on mortgages with lower floating-lending rates despite a possible interest hike. But new loans are expected to ease the burden with low fixed interest rates.”
Meanwhile, Shinhan, the flagship unit of Shinhan Financial Group, has put up impressive numbers in the second half of this year, with its earnings more than doubling from a year ago.
Net income stood at 964.8 billion won in the period, up from 447.6 billion won a year earlier, on its way to a 1.89-trillion-won net profit in the first half of 2011, up 38.4 percent from the previous year.