This year, the scale of lending at savings banks and community credit cooperatives has been reported to be decreasing. It is analyzed that this decline is due to the increase in arrears across the second financial sector, prompting a reduction in new loan issuances for the sake of soundness management. With the implementation of the three-tier stress Debt Service Ratio (DSR) this month, it is expected to be difficult to increase loans, leading to growing concerns over revenue.
According to the Bank of Korea on the 18th, the scale of lending at savings banks as of May was recorded at 95.7067 trillion won. During the same period, community credit cooperatives stood at 182.2252 trillion won. These figures represent decreases of 1.1% and 0.4%, respectively, compared to January of this year.
Recently, as arrears in the second financial sector have increased, financial institutions are reportedly strengthening their standards for new loan examinations. The ongoing economic downturn is contributing to a rise in low-income and low-credit borrowers who are unable to repay loans properly. According to the '2025 2nd Quarter Lending Behavior Survey' released by the Bank of Korea on the 15th, major domestic banks responded that they plan to further tighten their examination standards for household loans in the third quarter.
In the first quarter of this year, the arrears rate among 79 savings banks recorded 9%, marking the first time it has surpassed 9% in 10 years since 2015. Last year, the overall arrears rate for community credit cooperatives was 6.81%, an increase of 1.74 percentage points compared to the previous year. The industry estimates that it is maintaining a rate in the 7% range for the first quarter of this year.
The deepening of real estate project financing (PF) insolvency in the second financial sector has also had an impact on the contraction of lending scales. The Korea Federation of Savings Banks has organized the sale of 1.4 trillion won in real estate PF bad debts during the first half of this year for soundness management. Community credit cooperatives are forming a fund with a total investment of 400 billion won alongside Korea Asset Management Corporation (KAMCO), and are gearing up to resolve real estate PF bad debts. By addressing bad debts, the overall lending scale will also decrease.
On the other hand, in the first quarter of this year, the mutual financial sector, excluding community credit cooperatives, saw a slight increase (1.7%) in lending. The relatively low rate of bad real estate PF allowed for easier expansion of deposits compared to other sectors that need to reduce expenses for soundness management. As deposits increase, they will inevitably need to increase the loan operation ratio for revenue.
However, in the second half of the year, it seems unlikely that the lending scale across the entire second financial sector, including the mutual financial sector, will increase. This is largely due to the reduced borrowing capacity of users resulting from the recently implemented three-tier stress DSR and the June 27 measures to enhance household liability management, which could dampen loan demand. An official from the second financial sector explained that "there is an underlying sentiment throughout the second financial sector that hastily increasing new loans will make it difficult to manage arrears."