Revolving Credit Limits Cut by 20%, High-Income Unsecured Loans Capped at 100 Million Won... Loan Restrictions Tighten as Leveraged Investment Surges (Comprehensive)

Hana Bank Sets 100 Million Won Cap on Unsecured Loans;

Shinhan Bank Reduces Revolving Credit Line Limits

Household Loans Surge by 9.3 Trillion Won in May Due to Stock Market Leverage

Financial Authorities Activate Emergency Management

Major commercial banks have begun tightening their controls on unsecured loans. This move comes as demand for so-called "debt-fueled investment" has surged due to the recent rally in the domestic stock market, combined with seasonal demand for funds. As a result, household loans such as unsecured credit loans and overdraft accounts have risen at their fastest pace in four years and nine months, prompting financial authorities to further strengthen household debt management.

According to the financial sector on June 12, Hana Bank will, starting today, limit the maximum amount of unsecured loans available to high-income earners to 100 million won. Currently, borrowers can take out loans up to their annual income, but going forward, regardless of income level, the maximum amount for new unsecured loans will be capped at 100 million won. The bank has also fully abolished the previous exception that allowed unused limits during overdraft account renewals starting today.

Shinhan Bank plans to restrict applications for non-face-to-face unsecured loans if the total daily amount applied for, both in-person and non-face-to-face, exceeds the bank’s internally set daily limit starting June 15. Additionally, when renewing overdraft accounts with agreed amounts exceeding 30 million won, the bank will reduce the limit by up to 20 percent. This measure applies to accounts where the usage rate of the limit is less than 10 percent during both the contract period and the three months immediately preceding maturity.

NongHyup Bank will reduce preferential interest rates applied to unsecured loans and mortgage loans by 0.1 percentage points and 0.2 percentage points, respectively, starting June 15. This will effectively raise the lower bound of its lending rates. In addition, from today, NongHyup Bank has temporarily suspended new enrollments for Mortgage Credit Guarantees (MCG) issued by the Korea Housing Finance Corporation, effectively reducing loan limits.

Woori Bank has also halted applications for non-face-to-face credit loan refinancing (loan switching) products starting today. Applications for unsecured loans through loan comparison platforms such as Kakao Pay, Naver Pay, Finda, Toss, and Bank Salad will also be restricted.

The reason commercial banks are rushing to strengthen their management of unsecured loans is that household lending has spiked sharply, driven by a rise in "debt-fueled investment" following the recent rally in the KOSPI stock index.

According to the "May Household Loan Trends" released yesterday by the Financial Services Commission and the Financial Supervisory Service, household loans across all financial sectors increased by 9.3 trillion won month-on-month in May. This is nearly three times the increase seen in April (3.5 trillion won).

Of this, other loans increased by 5.3 trillion won, turning from a decline of 2 trillion won in April to significant growth in May. The magnitude of this increase is the largest in four years and nine months, since August 2021, when there was a frenzy of real estate and stock investments during the COVID-19 pandemic (an increase of 7.9 trillion won).

In response, financial authorities have decided to further tighten their management of household debt. The Financial Services Commission held a household debt review meeting yesterday and activated an emergency management system. Until the pace of loan growth slows, they plan to hold weekly review meetings to closely monitor and manage financial companies that fail to meet their management targets.

Banks have been instructed to strengthen their management of unsecured loans. While reducing the maximum amounts for new unsecured loans for high-income borrowers and encouraging early repayment by waiving prepayment fees for unsecured loans, the detailed criteria for these measures will be left to the discretion of each bank.

Shin Jin-chang, Secretary General of the Financial Services Commission, said at the meeting yesterday, "The increase in other loans, especially those centered on overdraft accounts, has expanded significantly in May due to increased demand for funds during Family Month and the influence of the stock market. With the end of the temporary exemption on higher capital gains taxes for owners of multiple homes, more properties may come onto the market, which could lead to an expansion in mortgage loans and increased volatility in unsecured loans. All financial sectors must therefore strengthen their preemptive and autonomous management of household loans."

Banks plan to monitor the trend of household loan growth and consider introducing additional regulations if necessary. If the growth in unsecured loans does not subside, there is discussion of setting a uniform limit of 50 million won for overdraft accounts, similar to measures taken during the COVID-19 pandemic.

An official at a commercial bank commented, "Since it is difficult to restrict lending even to customers visiting in person, we are prioritizing controls through non-face-to-face channels. We are not yet at the stage of uniformly capping overdraft accounts at 50 million won, but we will continue to monitor the growth of unsecured loans and consider additional measures if necessary."

This content was produced with the assistance of AI translation services.