As the government considers excluding group loans from the total volume management for household loans, expectations are rising among mutual finance institutions. With new household loans blocked this year, institutions judge that breathing room could open up if group loans are recognized as an exception. However, some note the actual impact may be limited because the group loan market is centered on commercial banks.
According to the financial sector on the 3rd, the financial authorities are reviewing a plan to exclude group loans from the total volume management for household loans as repayment loans for prospective residents of newly built apartments have faced repeated setbacks. Ideas being discussed include giving priority allocations of additional loan limit to banks that complied with the first-half volume cap. It is also reported that expanding banks' annual household loans cap is under discussion.
Group loans are loans handled in a bundle for relocation expenses, interim payments, and final payments, targeting new apartment allottees and members of reconstruction associations. Interim payment loans are executed in installments over several years depending on the construction progress rate, and final payment loans also often see a 2–3 year lag from project approval to actual execution, leading to criticism that total volume management is not easy from the perspective of financial companies.
Mutual finance institutions have the highest expectations for this policy fix. Mutual finance institutions exceeded the total volume of household loans last year and are subject to stricter caps this year. Credit unions, the Korean Federation of Community Credit Cooperatives (KFCC), and the National Federation of Fisheries Cooperatives effectively find it difficult to post a net increase in household loans, and NongHyup is also restricted in new lending as its household loans growth rate is capped at about 1% this year. In this situation, if they are allowed to expand group loans, they would have more room to increase lending.
As of the end of June, the outstanding loan balance of group loans at NongHyup, credit unions, and the Korean Federation of Community Credit Cooperatives (KFCC) stood at 38.15 trillion won, up 3.01 trillion won (8.6%) from the end of last year. During the same period, the household loans balance increased by 7.5 trillion won at NongHyup, 2.4 trillion won at the Korean Federation of Community Credit Cooperatives (KFCC), and 1.4 trillion won at credit unions, adding up to 11.3 trillion won across the three sectors alone. Group loans accounted for a significant portion of the increase in household loans.
However, the actual effect is expected to vary depending on the government's plan and market conditions. An official at mutual finance institutions said, "If group loans are excluded from total volume management, there could be breathing room across the sector," but added, "It is still uncertain to what extent the financial authorities will ease regulations, so we need to check the details."
Another official said, "Consumers prefer commercial banks, which relatively offer lower interest rates, so the actual effect on business expansion may be limited."