The government has doubled the total household loan quota, but the impact on the secondary financial sector is expected to be limited. While mutual finance institutions can treat group loans under a separate limit, their capacity for expanding general loans remains constrained. Savings banks and credit card companies are also facing challenges in actively expanding their operations due to funding costs and concerns over financial soundness.
According to the financial sector on August 18, the government has raised the target for household loan growth from 1.5% to 3% this year, allowing an increase of approximately 30 trillion won to 60 trillion won annually. Financial authorities plan to allocate this increased capacity based on the performance of individual financial institutions, but there are concerns that even if the secondary financial sector receives additional limits, converting this into actual loans will be difficult.
Mutual finance institutions are expected to see some relief specifically for group loans. Financial authorities have decided to manage loans related to housing supply, such as moving expenses, interim payments, and final payments, separately, which increases the potential for handling group loans.
However, the industry views it as challenging to immediately increase general mortgage and credit loans. Some mutual finance institutions, such as Saemaul Geumgo and credit cooperatives, have already exceeded their existing household loan management targets, leaving little room for normalizing loan operations outside of group loans. Additionally, group loans must compete with relatively lower interest rates from banks, raising uncertainty about whether the permitted handling will lead to actual supply increases.
The funding base to support loan expansion has also weakened. As of the end of June, the deposit balance in the mutual finance sector was 903.415 trillion won, a decrease of 27.8198 trillion won compared to the end of last year. This marks the first decline in deposit balances on a semi-annual basis since statistics began being compiled in 1993. With reduced inflows from savings and deposits, institutions may have to adopt a conservative approach to asset expansion, including loans, to manage liquidity.
Savings banks are also assessed to have difficulty fully utilizing the additional limits. Rising market interest rates necessitate higher savings and deposit rates to secure deposits, while the ongoing burden of addressing existing real estate project financing (PF) failures and setting aside provisions continues.
Although funding costs have increased, it is not feasible to simply raise loan interest rates. Legal maximum interest rate restrictions and the repayment capabilities of their primary customer base, which consists of low to mid-credit borrowers, must also be considered. Even if loans are increased, achieving sufficient profitability is challenging, making it difficult for savings banks to engage in aggressive household loan marketing, according to industry insiders.
The credit card industry also anticipates that the impact of the overall quota increase will be minimal. While financial authorities have raised the total household loan quota, they have decided to maintain a conservative management stance regarding credit loans, including card loans. As of the end of May, the outstanding balance of card loans from nine credit card companies reached a record high of 43.2534 trillion won.
Ultimately, it is unlikely that this overall quota increase will lead to an expansion of loan operations across the financial sector. While banks can utilize the additional capacity primarily for essential loans such as mortgages and group loans, the secondary financial sector is expected to face significant limitations in actual supply expansion due to declining deposits, funding costs, and concerns over financial soundness.
* This article has been translated by AI.
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