Commercial banks have partially resumed household loans that had been suspended, but financial authorities plan to maintain the policy of strengthening household debt management next year. However, measures are being considered to manage household loans by distinguishing between the metropolitan area and the provinces to revitalize the stagnant regional economy.
According to the financial sector on the 19th, the banking sector recently submitted its household loan plan for next year to the financial authorities. The authorities plan to manage the growth of household loans within the nominal gross domestic product (GDP) growth rate, so the total amount of household loans is expected to increase slightly compared to this year.
The banking sector is said to have set monthly and quarterly targets for the household loan plan at the request of the financial authorities. This year, the four major banks exceeded their annual household loan target by 100% in August, leading to a lending cliff in the second half of the year. To limit this, separate monthly and quarterly targets have been established. The financial authorities are currently discussing this plan with relevant departments dealing with policy loans.
Although the financial authorities noted that the risks of household debt have somewhat eased, they plan to maintain the current policy stance. Starting next year, if a specific bank fails to meet its household loan targets, a type of penalty will be introduced that would reduce the loan limit for the following year. Additionally, the 'stressed total debt service ratio (DSR) phase 3,' which imposes an additional charge on all financial sector household loans, is also scheduled to be implemented as planned in July next year.
Financial authorities are monitoring the possibility that loan demand may increase in early next year as the banking sector resumes loans that had been halted and market interest rates are on a downward trend. Commercial banks have decided to resume non-face-to-face household loans and mortgage loans for individuals owning one dwelling, which had been suspended, starting next year. The limits for mortgage loans intended for living stability funds and credit loans have also been restored to their original state. The U.S. Federal Reserve (Fed) added a 0.25 percentage point cut to its benchmark interest rate on the same day, further driving down market rates. Therefore, the financial authorities believe that the trend of strengthening household loan management should be maintained for the time being.
Given the financial authorities' maintenance of the policy stance, it will be difficult to expect an expansion of loans from the banking sector next year. A banking sector official said, “If we manage the total amount of loans on a monthly and quarterly basis, there could be situations where we suspend and then resume loan sales intermittently.”
However, the financial authorities plan to approach the funding supply for provinces more flexibly to revitalize the regional economy. It is reported that options are being considered to apply different weights to household loans in the metropolitan area and the provinces. Additionally, there are discussions underway about providing incentives when banks supply funds to local corporations or small businesses.