Regulator Tightens Restrictions on Bank Lending to Address Household Debt Problem

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Sources said Thursday that South Korea’s financial authorities have called on local banks to tighten screening of unsecured loans as part of efforts to tackle the population’s growing debt.

The Financial Supervisory Service (FSS) recently required all commercial lenders to submit their plans to adjust their loan limits to individuals by Friday.

Thus, according to the sources, banks have developed or are planning plans to reduce the limits on unsecured loans.

Nonghyup Bank, the leading banking arm of NH Financial Group Inc., said on Tuesday that the limit on individual credit loans should be lowered to 100 million won (US $ 85,700) or less from 200 million won.

The ceiling for new unsecured loans will be reduced to 100 percent of the borrower’s annual income.

Following the move by Nonghyup Bank KB Kookmin, Hana and other commercial lenders are poised to follow suit, sources said, and major internet lender Kakao Bank is expected to take a similar step.

The FSS’s latest move comes after it demanded a meeting of bank lending executives to urge lenders to reduce their unsecured loan limits to borrowers’ annual income.

Local financial authorities are prioritizing curbing sustained growth in household debt, which some experts say is a ticking time bomb for Asia’s fourth largest economy.

Lending to the South Korean population reached a record 1,765 trillion won ($ 1.51 trillion) at the end of March, up 9.5 percent from a year earlier, according to the central bank.

In April this year, the Financial Services Commission (FSC), the decision-making body of the FSS, announced a set of measures to slow the growth of household debt by extending tighter rules to more mortgage borrowers.

In line with these measures, the FSC said Thursday it will revise the rules for unsecured loans provided by savings banks and other non-bank financial institutions.

According to the revised rules, which are due to take effect in July next year, these financial institutions will have to create additional reserves for possible losses on credit lines of individual borrowers.

Industry analysts believe that tightening loan loss provisions could lower earnings and thus induce non-bank financial institutions to impose tighter restrictions on unsecured loans. (Yonhap)



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