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Regulators pushing banks to tighten lending standards

Financial Services Commission (FSC) Vice Chairman Sohn Byung-doo holds a video conference on financial risk management at the Government Complex in Seoul, Tuesday. Yonhap
Financial Services Commission (FSC) Vice Chairman Sohn Byung-doo holds a video conference on financial risk management at the Government Complex in Seoul, Tuesday. Yonhap

By Lee Min-hyung

The government and financial authorities are pressing banks to tighten regulations on surging non-collateralized (credit) loans to households.

This is because a growing number of retail investors have gone on a borrowing binge to invest in stocks amid the unprecedented boom in the local equity market after its sharp collapse in March.

As of Sept. 10, the nation's top five banks' aggregated "credit" loan balance reached 125.4 trillion won, up 1.14 trillion won from the end of last month, according to data compiled from the lenders.

Financial authorities ― such as the Financial Supervisory Service ― are expressing concerns over the sharp increase, gearing up to introduce a set of tighter regulations to block banks from providing excessive amounts of credit loans to individuals.

The decision is also part of their move to prevent households' potential abuse of credit loans to purchase apartments due to toughened real estate regulations. For years, the authorities have reinforced restrictions on mortgages. With households unable to raise down payments giving up purchasing apartments because of the regulatory hurdle, investors particularly in their 20s and 30s have turned their eyes to the stock market and sought to generate a profit from stocks purchased with borrowed funds.

The Bank of Korea's (BOK) monetary policy board also underlined the need for the central bank to carry out monetary easing in a way to rev up the sagging real economy and boost investment.

"We need to pay attention to households' rising credit loans that are used to fund investments in the stock and real estate markets," a board member said during the BOK's latest meeting Aug. 27.

"The central bank should constantly come up with measures to encourage liquidity in the market to flow to productive areas ― such as consumption and investment ― which can help recover the real economy," he said.

Regulators have yet to announce specific sets of regulations on credit loans, but commercial lenders are on track to jump on the government's drive by possibly increasing interest rates on such loans.

"It appears highly likely that financial authorities will give notice of a set of toughened loan regulation guidelines on commercial lenders in the very near future," an official from a major commercial lender here said. "The number of customers asking for credit lines has surged in the past few days amid a growing sense of loan-related anxiety."

Readjusting prime rates is one of the most feasible measures that commercial banks can do to control the rapidly-rising credit loans amid the prolonged low interest rate.

Financial Services Commission (FSC) is also reviewing what kinds of specific regulatory measures it will introduce to curb the rise in credit loans. FSC Vice Chairman Sohn Byung-doo said he would monitor whether the loan surge was due to banks' competition to generate more revenue.

"We are going to keep a close watch over whether the credit loan increase is attributable to competition between banks," he said.


Financial Services Commission (FSC) Vice Chairman Sohn Byung-doo holds a video conference on financial risk management at the Government Complex in Seoul, Tuesday. Yonhap
Financial Services Commission (FSC) Vice Chairman Sohn Byung-doo holds a video conference on financial risk management at the Government Complex in Seoul, Tuesday. Yonhap

By Lee Min-hyung

The government and financial authorities are pressing banks to tighten regulations on surging non-collateralized (credit) loans to households.

This is because a growing number of retail investors have gone on a borrowing binge to invest in stocks amid the unprecedented boom in the local equity market after its sharp collapse in March.

As of Sept. 10, the nation's top five banks' aggregated "credit" loan balance reached 125.4 trillion won, up 1.14 trillion won from the end of last month, according to data compiled from the lenders.

Financial authorities ― such as the Financial Supervisory Service ― are expressing concerns over the sharp increase, gearing up to introduce a set of tighter regulations to block banks from providing excessive amounts of credit loans to individuals.

The decision is also part of their move to prevent households' potential abuse of credit loans to purchase apartments due to toughened real estate regulations. For years, the authorities have reinforced restrictions on mortgages. With households unable to raise down payments giving up purchasing apartments because of the regulatory hurdle, investors particularly in their 20s and 30s have turned their eyes to the stock market and sought to generate a profit from stocks purchased with borrowed funds.

The Bank of Korea's (BOK) monetary policy board also underlined the need for the central bank to carry out monetary easing in a way to rev up the sagging real economy and boost investment.

"We need to pay attention to households' rising credit loans that are used to fund investments in the stock and real estate markets," a board member said during the BOK's latest meeting Aug. 27.

"The central bank should constantly come up with measures to encourage liquidity in the market to flow to productive areas ― such as consumption and investment ― which can help recover the real economy," he said.

Regulators have yet to announce specific sets of regulations on credit loans, but commercial lenders are on track to jump on the government's drive by possibly increasing interest rates on such loans.

"It appears highly likely that financial authorities will give notice of a set of toughened loan regulation guidelines on commercial lenders in the very near future," an official from a major commercial lender here said. "The number of customers asking for credit lines has surged in the past few days amid a growing sense of loan-related anxiety."

Readjusting prime rates is one of the most feasible measures that commercial banks can do to control the rapidly-rising credit loans amid the prolonged low interest rate.

Financial Services Commission (FSC) is also reviewing what kinds of specific regulatory measures it will introduce to curb the rise in credit loans. FSC Vice Chairman Sohn Byung-doo said he would monitor whether the loan surge was due to banks' competition to generate more revenue.

"We are going to keep a close watch over whether the credit loan increase is attributable to competition between banks," he said.


Lee Min-hyung mhlee@koreatimes.co.kr


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