Savings Bank Collateral Loans Drop Nearly 20% in Three Years

The balance of collateral loans backed by savings and deposits at savings banks has decreased by nearly 20% over the past three years. This decline is attributed to a shift of funds to the stock market and a weakening of the savings banks' competitive edge in attracting deposits. This trend contrasts with the recent increase in collateral loans at the five major commercial banks.

According to the Financial Supervisory Service's financial statistics information system, as of the end of the first quarter of this year, the balance of collateral loans at 79 savings banks nationwide was 908.33 billion won, down 5.6% from 962.3 billion won at the end of last year. Compared to 1.11866 trillion won at the end of March 2023, this represents an 18.8% decrease.

Collateral loans allow customers to borrow up to 95% of their savings and deposits without being subject to the total debt service ratio (DSR) regulations, making them a popular option for those in need of quick, short-term funds.

The primary reason for the decline in collateral loans at savings banks is the reduction in their deposit base. According to the Bank of Korea's economic statistics system, the total deposits at savings banks fell from 116.0431 trillion won in March 2023 to 99.5740 trillion won in March this year, a decrease of 14.2%. During the same period, the balance of collateral loans also dropped by 18.8%. As the amount of savings and deposits available for collateral has diminished, related loans have also decreased.

The recent boom in the stock market has also contributed to the outflow of funds from savings banks to the securities market. Industry experts suggest that some customers may have opted to withdraw their savings rather than take out collateral loans when they needed cash. Many high-interest savings products have low monthly contribution limits, resulting in smaller amounts available for collateral loans.

A representative from a savings bank noted, "Even if the interest rates on savings and deposits are high, the low monthly contribution amounts often mean that the amount available for collateral loans is less than 5 million won. To secure a significant amount, customers typically need to contribute for at least six months, but in urgent situations, the amount available through collateral loans may not be sufficient, leading to cases of early withdrawal of savings and deposits."

This trend contrasts with the situation at commercial banks. In July of this year, the balance of collateral loans at the five major commercial banks increased compared to the previous year. This rise is attributed to heightened demand for collateral loans, which are not subject to DSR regulations and offer relatively lower interest rates amid stricter lending regulations. Conversely, the significant reduction in deposits at savings banks has diminished the foundation for supporting such loan demand.

However, with the recent slowdown in the stock market and savings banks raising interest rates on savings products to secure deposits, there is potential for a shift in this trend. If savings bank deposits begin to increase again, it may impact the ongoing decline in collateral loans.

Another savings bank representative stated, "Collateral loans are typically used for a month or two when cash is urgently needed or when additional loans are unavailable. If the balance of savings and deposits recovers and the barriers to other loans increase, related demand may remain at a certain level."