The Korea Herald


Credit loans soar in August amid ultra-low interest rates, stricter mortgage rules

By Choi Jae-hee

Published : Sept. 2, 2020 - 14:59

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(Yonhap) (Yonhap)

South Korea’s major banks saw their credit loan balance rise by more than 4 trillion won ($3.37 billion) on-month in August, data showed Wednesday, due to persisting ultra-low interest rates, as well as side effects from new loan regulations. 

Outstanding personal loans extended to individuals by the nation’s five major lenders -- KB Kookmin, Shinhan, Woori, Hana and NH NongHyup -- stood at nearly 124.27 trillion won last month, up 4.76 trillion won from a month earlier. This on-month increase hit a fresh record high in two months, following the 2.8 trillion won jump observed in June. 

KB Kookmin posted the largest monthly hike of 1.06 trillion won, followed by Shinhan with 1.05 trillion won, Woori with 719 billion won, NH NongHyup with 631 billion won and Hana with 609 billion won.

The surge came as consumers have increasingly borrowed money from banks to take advantage of record-low interest rates.

Last month, the Bank of Korea froze the key interest rate at the current record low of 0.5 percent to cushion the impact of the prolonged coronavirus outbreak. As of the end of August, the annual interest rate of credit loans provided by domestic banks remained between 1.75 percent and 3.6 percent, lower than that of mortgage loans with a maximum of 4 percent. 

Another reason was the government’s strict regulations on mortgages which consequently pushed homebuyers toward unsecured loans, industry sources said.

In a series of policies designed to tame real estate prices, the Moon administration has imposed tighter rules on the loan-to-value ratio -- the amount of a loan compared to the value of a property -- especially in designated bubble-prone zones.

Also, retail investors rushed to receive bank loans amid the current ultra-low interest environment to purchase stocks, while cash-strapped small business operators relied on loans amid the recent epidemic spike.

Meanwhile, as the nation’s financial authorities warned local banks against a surge in personal loans and hinted at tougher credit lending rules, a growing number of consumers have flocked to apply for bank loans, fueling the recent borrowing spree, officials said. 

“The combined personal credit loans are much higher compared to the previous year. We urge local lenders pay special attention to the current situation,” Financial Services Commission Vice Chairman Sohn Byung-doo said in a financial risk management meeting last month.

On the following day, Deputy Prime Minister and Finance Minister Hong Nam-ki said during a parliamentary session that there was a need to further reinforce the rules for debt service ratio, or DSR -- the maximum amount of credit loans allowed for an individual compared to household disposable income.

By Choi Jae-hee (