[NEWS IN FOCUS] Banks freeze new loans as loan growth ceilings are set



Mortgage and jeonse loan announcement outside a commercial bank in Seoul on Monday. Banks tightened new lending under pressure from the government. [YONHAP]

Credit is tightened considerably, with some banks suspending new loans on orders from the financial authorities.

NH Nonghyup Bank became the first to remove the punch bowl, announcing on August 19 that it would suspend all new loans until the end of November.

Only unsecured loans will be made, and even these loans will be limited.

Woori Bank followed suit the next day, temporarily suspending lending until the end of September. The bank says it has already reached the maximum amount it can lend in the third quarter.

Others have not announced similar measures, but there were fears over the weekend that other financial companies would follow suit.

“This is the first time that new mortgages have been stopped,” said Lee Kyoung-ja, analyst at Samsung Securities. “Even though the banks have already drastically cut back on loans. ”

The analyst said that if the suspension extends to other banks, it could raise rates for non-bank financial institutions, as borrowers will have no other choice.

The measures come after financial authorities asked banks to keep the increase in new loans at 5% year-on-year.

In the case of NH Nonghyup Bank, lending rose 7.1% last month.

It was also reported that financial authorities – the Financial Services Commission (FSC) and the Financial Supervision Service (FSS) – last week asked non-bank financial institutions, such as savings banks and cooperatives, to do the same.

As concerns about shrinking loan opportunities increased over the weekend, financial authorities attempted to allay panic and fear among loan seekers, especially as the moving season, which is typically in the fall, fast approaching.

In a statement released on Monday, the FSC stressed that the possibility of temporary loan suspensions by NH and Woori Bank spreading to other financial companies is low.

“Measures have been taken for those who have exceeded their initial targets,” the statement said, citing NH by name. “Most financial companies, including large commercial banks, still have room.”

The government recently warned of raising interest rates from the Bank of Korea (BOK), which could increase asset management costs and lower property prices.

FSC Chairman Eun Sung-soo said on July 28 that the government would have no choice but to tighten lending to households in the second half of the year to keep the annual increase in lending to households at 5-6% .

“To keep it between 5 and 6% by the end of the year, the increase in the second half must be managed between 3 and 4%. Eun spoke about the growth in household loans.

According to the central bank, in the first quarter of this year, loans to households totaled 1.666 billion won, an increase of 9.5% year-on-year.

The central bank will announce on Tuesday outstanding loans to households for the second quarter.

Koh Seung-beom has been chosen as the new president of the FSC. He was until recently a member of the central bank’s monetary policy committee and is considered a hawk.

Koh was the only one to vote for a price increase in July. After his appointment, Koh publicly called for a stronger approach to managing household debt.

The central bank’s monetary policy committee holds its rate-setting meeting on Thursday. For every 1 percentage point increase, borrowers must pay an additional 12 trillion won.

But there are those who believe the central bank is likely to hold interest rates down given the growing difficulties many small businesses and households face due to the government’s extension of social distancing regulations.

The government extended the current level of social distancing by an additional two weeks this weekend, although it increased the number of people who can assemble after 6 p.m. from two to four under certain conditions.

“We expect members of the monetary policy committee to maintain rates for August,” said Kang Seung-won, analyst at NH Investment & Securities. “The problem is Covid-19. ”

“Our fundamentals are strong, including external credit ratings as well as fiscal strength,” Deputy Finance Minister Lee Eog-weon said Monday. “However, there are also uncertainties, including the resurgence of Covid-19 not only at home but also abroad, as well as the gradual decline in the United States.”

BY LEE HO-JEONG [[email protected]]



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