Mutual Finance Sector Gains Lending Flexibility... Discussion on Additional 30 Trillion Won Allocation for Household Loan Cap

Household Debt Growth Target Raised from 1.5% to 3%
Financial Sector Discusses Additional Allocation of 30 Trillion Won
Saemaul Geumgo and Credit Unions to Gain Additional Lending Capacity

The government has decided to double this year's target growth rate for total household debt from the previous 1.5% to 3.0% and to separate group loans from each financial institution's total lending cap. As a result, mutual finance institutions, whose capacity for new loans had effectively been blocked, are now expected to gain more room to operate. The banking sector is also expected to see greater lending capacity due to additional allocation of limits and separate management of group loans.

On August 16, the financial authorities announced that they are reviewing a plan to allocate additional household loan caps to the financial sector. This additional allocation is expected to include the mutual finance sector, which failed to meet last year's household loan management targets and therefore had this year's loan growth restricted to 0–1%. Currently, Saemaul Geumgo and credit unions are not allowed to increase household loans compared to the previous year, and agricultural cooperatives' mutual finance loan growth is limited to within 1%.

The mutual finance sector's group loan issuance has continued to increase. This is due to a balloon effect, with non-banking institutions seeing a rise in group loans as a result of stricter management of household lending by banks at the beginning of the year. As previously contracted loans for relocation expenses, interim payments, and final payments were disbursed sequentially before loan restrictions began, the total lending cap was quickly exhausted. With the upward adjustment of the total household loan target, the government plans to use a significant portion of the approximately 30 trillion won thus secured to meet demand for group loans.

The Financial Services Commission and the Financial Supervisory Service will convene a meeting of financial sector representatives on August 19 to discuss adjustments to each financial company's household loan cap. This will be the first meeting to officially discuss adjustment measures since the announcement of the comprehensive real estate finance plan on August 13 and will address methods and criteria for distributing the newly secured approximately 30 trillion won in lending capacity across the financial sector.

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