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| A loan sales office of Hana Bank in Seoul. Financial authorities plan to impose tougher loan regulations on Monday. / Yonhap |
By Lee Min-hyung
After the country's financial regulators clarified plans to control surging household debts, Korea's commercial banks will lower their upper limits for non-collateral credit loans.
Under the updated regulation organized and set by the Financial Services Commission (FSS), salaried workers or those equivalent whose annual salary tops 80 million won or about $72,400, before tax, will be blocked from receiving credit loans of more than 100 million won when buying houses in Seoul or Seoul metropolitan areas. The regulation will go into effect Nov. 30.
The loans will be retrieved within two weeks if borrowers are found to have used the money for housing investment less than a year after receiving the loans.
Credit or loan limit refers to the maximum amount of credit a financial institution can extend to a client. But this time, banks' moves are in sync with the government's plans to stop more people from jumping on what it considers real estate speculation amid ever-surging housing prices in the capital and its surrounding cities.
Plus, the continued big struggle to bring down the country's soaring housing market is viewed as a challenging factor for President Moon and his Cheong Wa Dae economic team.
Beyond the regulation, other authorities ― such as the Financial Supervisory Service (FSS), the government agency handling the country's financial policies ― are also asking banks to control the loans by the end of this year.
The step comes amid rapidly rising household debts driven by a nationwide investment boom amid low interest rates. Real estate is usually a sensitive political issue around the world. However, in Seoul, it has been explosive.
According to data by the Bank of Korea (BOK), the country's central bank, the household loan balance came in at 1,585.5 trillion won by the third quarter of this year, up 2.6 percent from a quarter ago. This was the biggest quarterly increase in almost four years since the fourth quarter of 2016.
The data shows that the country's wealth has been flowing into real estate to an "unusual degree," although its stock market is quite good. Economists and experts said because there were few options, public investors were betting on "familiarity" over "unfamiliarity" ― such as investing abroad ― foreign currency fluctuation making the anticipated returns quite difficult to anticipate.
From that standpoint, officials from local banks said banks were unlikely to increase loan limits for households by the end of this year, at least.
"Banks cannot help walking on eggshells around authorities, as they show little sign of relieving loan-related regulations for households," an official from a major lender said. "Many households have already taken credit loans amid such lingering uncertainty."
The BOK data also showed that the annual interest rate of credit loans among banks in Korea rose to 3.15 percent in October, up 0.26 percentage points from the previous month. This is the first time in five months that the rate surpassed the 3 percent range since May.
Banks are also expected to continue raising interest rates for credit loans for the time being in line with the authorities' concerted efforts, possibly to curb speculative money moves. With a lower limit, general consumers would use a greater percentage of their available credit each month, which probably has some negative effects on their credit points and ability to borrow from financial institutions.
Households have in recent weeks taken out loans in a pre-emptive measure due to the rising loan market uncertainty, even if they are not in dire need of the capital.
"More people are seeking to borrow, but authorities continue to press lenders to control the total amount of loans," the official said. "We are on track to raise the interest rate to lower the demand for loans from households."
According to data from the nation's top five lenders ― such as Shinhan and KB ― their combined balance for individuals' credit loans reached 128.84 trillion won as of the end of October, up 17.2 percent from a year ago.
