The financial authorities are pushing measures to expand lending to mid- and low-credit borrowers (bottom 50% by credit score) at smaller financial institutions such as mutual finance institutions, savings banks, and specialized credit finance companies (such as card companies or leasing firms that cannot take deposits and only make loans), by excluding increases in loans to mid- and low-credit borrowers from the household loan total volume cap and by allowing their loan claims to be reflected after a reduction of the claim amount.
According to the financial authorities on the 23rd, the Financial Services Commission is reviewing incentives to encourage expansion of mid-rate loans at smaller financial institutions ahead of next month's announcement of household liability total volume regulations.
Authorities first decided, as in last year, to exclude the increase in loans to mid- and low-credit borrowers by smaller financial companies from the total volume cap. They are also considering revising the Enforcement Decree of the Specialized Credit Finance Business Act to reflect mid- and low-credit loan claims after reducing the claim amount. Specialized credit finance companies are subject to a limit that their loan aggregates cannot exceed eight times their equity capital, and mid- and low-credit claims are reflected at 80%, not 100%, when calculating the claim amount. This measure is intended to boost lending to low-income households. If authorities further ease this standard, room to increase lending will grow.
It appears unlikely that card loans will be excluded from the household loan total volume, as requested by the card industry. If authorities tighten household loans, card loans could rise due to a balloon effect. According to last year's provisional operating results for specialized credit finance companies, card loans increased by 8 trillion won (about 17%) from a year earlier due to household loan regulations.
Even with the authorities' incentives, it will not be easy for specialized credit finance companies to increase loans to mid- and low-credit borrowers. In a continuing downturn, funding expenses are also soaring due to the fallout from the Middle East war. Because specialized credit finance companies cannot take deposits, they raise funds through external borrowing fund or bonds, and yields on their bonds, which had fallen to the 2% range last year, have recently surged to 4%.