Concerns Grow Over Potential Loan Shutdown Amid Tightening Credit Conditions

As the annual household loan targets for banks approach exhaustion, concerns are rising about a potential "loan shutdown" in the second half of the year. Major banks have begun to reduce limits on mortgage loans and have halted the acceptance of loan brokers, leading to fears that new loan applications may be completely closed off.

According to the financial sector on July 14, the household loan growth targets set by financial authorities for this year are 0.59% for Kookmin Bank, 0.70% for Shinhan, Hana, and NH Nonghyup Banks, and 0.71% for Woori Bank. Reports indicate that only about 950 billion won remains to meet these annual targets.

However, industry experts generally believe that a complete "shutdown" of mortgage and credit loans across all banks is unlikely. As existing loans are repaid, banks will regain capacity to issue new loans, and the remaining limits and growth rates vary by institution and product. This means the remaining target of 950 billion won cannot be simply interpreted as the amount available for new loans.

Consequently, banks are managing their total loan volume by adjusting thresholds based on products, limits, and application channels rather than closing all loan windows simultaneously. This approach is referred to as "selective distribution." Kookmin, Shinhan, Hana, and NH Nonghyup Banks have restricted new applications through loan brokers while keeping some in-person and online applications open.

Responses to these changes vary by product. Kookmin Bank recently reduced the limit for mortgage loans aimed at home purchases from 600 million won to 300 million won. Woori Bank lowered the new limit for overdraft accounts to 50 million won, while NH Nonghyup Bank restricted it to 50% of annual income. In contrast, Industrial Bank of Korea and some regional banks have maintained their credit loan regulations. This means that even for the same borrower, the availability of loans can differ based on the bank and the product or channel chosen.

A concern arises that varying thresholds among banks may lead to a concentration of demand at financial institutions with more lenient policies. If one bank tightens its lending, demand may shift to another bank, which could then also impose stricter limits, creating a chain reaction.

In fact, this month, NH Nonghyup Bank has already exhausted its loan broker volume. Some internet banks are experiencing a surge in credit loan applications, leading to "open runs" where applications close within hours. There is also a potential "balloon effect" where demand displaced from banks may shift to the second financial sector. According to the Financial Services Commission, household loans in the second financial sector increased by 700 billion won last month, a significant rise from the previous month's increase of 300 billion won.

This trend is likely to continue in the second half of the year. Instead of all banks closing their doors simultaneously, those that reach their targets first and products with rapid growth may raise their thresholds, prompting other banks with high demand to follow suit.