Consumers feared to fall prey to banking oligopoly amid lending quota rule

Seen above is the sales office of one of the nation's major commercial lenders in Seoul on Aug. 30. Yonhap

By Lee Min-hyung

Korean consumers will fall prey to financial regulators' so-called "6-percent lending quota rule," as banks are widely expected collectively to take action to hike their loan rates further in line with rising benchmark rates.

Under the regulation, commercial banks operating businesses here cannot raise the quota of their household lending by more than 6 percent this year, compared to the previous year.

But of particular concern is that consumers could end up suffering huge damages from the new regulation. Major lenders here already incrementally ceased offering the loan products that consumers are in most dire need of ― such as mortgage loans or non-collateral loans for office workers ― saying that they have almost reached their lending quota limits, even from around the beginning of the fourth quarter.

Even if banks can resume their loan services from the start of 2022, consumers will have to borrow money at higher interest rates around that time, as the Bank of Korea (BOK) has been sending signals that there will likely be an additional rate hike this year.

According to data from the nation's top five banks, their average mortgage loan interest rate rose by around 0.35 of a percentage point as of the end of September from the previous month. The hike was in reaction to the BOK's key rate hike to 0.75 percent in August.

The government and financial watchdogs have voiced the need to tighten lending rules with a view to controlling the rapid rise of household debt here.

Given that Korean banks' key profit source is still the loan-deposit margin, the focus of their sales activities has been on attracting more customers for their loan services. But with the lending quota rule taking effect, they do not have to engage in fierce marketing activities to steal more customers away from their rivals.

On top of that, the banking industry is dominated by only a few big lenders. In the oligopolistic market environment and with the lending quota regulation, banks are the main beneficiaries that can reap the maximum possible revenue by maintaining a wait-and-see position, at a time when the demand for loans remains strong amid limited supply.

"Given regulators' super-hawkish stance on household debt, chances appear slim for the tough lending rule to be alleviated before the end of the incumbent administration," a financial industry source said. "Consumers seeking to take out loans have no choice but to fall victim for the time being and have to face a greater cost burden, as loan interest rates are expected to be on the rise throughout next year."

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