As the new year approaches, banks are easing restrictions on lending by implementing new total loan limits. In particular, Shinhan Bank has begun to lower the additional charge as criticism grows that the deposit and loan interest rate gap is excessively wide. With the Bank of Korea’s interest rate cut becoming more certain, expectations for economic stimulus are increasing.
According to the financial sector on the 13th, Shinhan Bank will lower the household loan additional charge by up to 0.3 percentage points starting on the 14th. For specific products, the additional charge on housing loans (limited to 5-year bonds) for home purchase loans will decrease by 0.1 percentage points, and the living stability fund loan will drop by 0.05 percentage points.
In the meantime, banks have been raising additional charges intensively to control household loan demand. Despite the Bank of Korea cutting its benchmark interest rate twice (by a total of 0.50 percentage points) in October and November of last year, loan interest rates remained high because banks artificially increased additional charges in response to financial authorities' strict management of household loans.
However, as the size of household loans from banks has decreased for the first time in eight months, it appears that the banking sector is also adapting its interest rate policies. As of the 9th, the balance of household loans from the five major banks (Korea Housing and Commercial Bank, Shinhan Bank, Hana Bank, Woori Bank, NH Nonghyup Bank) was 733.769 trillion won, down 366 billion won from the end of last year (734.135 trillion won).
On the 16th, the first Monetary Policy Committee meeting of the year is expected to reduce the Bank of Korea's benchmark interest rate to 2.75%, which has heightened expectations for a decline in market interest rates. The benchmark interest rate is projected to drop to 2.25% by year-end if the Bank of Korea cuts rates two more times this year, due to increased necessity for economic stimulus amid deepening domestic sluggishness and slowing export growth.
In this situation, financial authorities plan to maintain a strong management stance on household loans this year, focusing on strengthening loan assessments based on individuals' repayment ability rather than artificially increasing additional charges.
A financial authority official said, "Lowering additional charges is the direction the authorities desired," adding that they emphasized multiple times their hope that the rates of commercial banks would move in line with funding rates rather than maintain an abnormal situation where they are opposed.
They continued, "However, household loan management should be based on repayment ability assessments. While it may have been difficult for banks to lower additional charges due to total loan regulations until last year, I conveyed that rates should align with market trends while risk management should be based on repayment ability."
Currently, financial authorities are implementing a policy to manage the total amount of household loans by each bank on a monthly and quarterly basis. From July, a three-step debt service ratio (DSR) implementation is also anticipated.
Additionally, it was announced that financial institutions would be encouraged to establish internal DSR management. When the authorities announced measures for managing household debt in August of last year, they instructed banks to continually assess financial consumers' income and DSR information for internal management purposes. The current DSR regulation of 40% means that financial institutions should further differentiate based on repayment capability, asset status, and other factors.