The financial authorities decided to fully exclude mid-rate loans from secondary financial institutions from the total household loans cap to increase lending to borrowers with mid-to-low credit scores.
According to the financial sector on the 23rd, the Financial Supervisory Service held a meeting on the 21st with savings banks, specialized credit finance companies, and mutual finance institutions, among other secondary financial institutions, and explained follow-up measures to the recently announced comprehensive real estate finance plan.
Starting this month, the authorities decided to exclude the entire increase in mid-rate loans from each financial company's total household loans and manage it separately. Currently, among private mid-rate loan volumes, only 80% at savings banks and 40% at the specialized credit finance industry are excluded from the total cap.
Mid-rate loans are products supplied to borrowers in the bottom 50% of credit scores, with interest rates capped in the 12% range. Going forward, like group loans (relocation expenses, interim payments, and balance loans), they will be reflected not in company-by-company totals but in reserves managed by the financial authorities.
The financial authorities also asked secondary financial institutions to expand not only mid-rate loans but also policy finance products. "Saitdol Loan II," a guaranteed product newly to be handled by the specialized credit finance sector for mid-credit borrowers, is being prepared for launch in Oct.
The supply base for mid-rate living-stability loans is also expanding. After six savings banks first introduced them at the end of June, the capital finance industry launched products last month, and card companies and other savings banks are preparing launches. A plan is also being pursued to exclude the net increase in policy livelihood loans from each financial company's total.
The impact of this measure is expected to be relatively large among savings banks and card companies. In the first half, savings banks' mid-rate loan volume was 4.908 trillion won, down 22.4% from the same period a year earlier. However, the second-quarter volume was 2.7496 trillion won, up about 27% from the first quarter.
Card companies' mid-rate loan volume increased 41.6% from about 3.4916 trillion won in the first half of last year to 4.9458 trillion won in the first half of this year. However, in the second quarter it was 2.375 trillion won, down 7.6% from the first quarter.
The industry believes that, with capacity for new lending limited by the total cap on household loans, this measure will help expand loan supply. However, there is also concern that the profitability of mid-rate loans is relatively low and that rising delinquency rates going forward could increase soundness burdens.