The Financial Supervisory Service decided to prioritize allocating additional household loans limits to savings banks with relatively smaller asset sizes to boost mid-rate loans. In the mutual finance institutions sector, additional limits were reportedly allocated to places where this year's total household loans exceeded the cap by a relatively smaller margin.
According to the financial industry on the 3rd, the Financial Supervisory Service (FSS) finalized the criteria for allocating additional household loans limits to savings banks and is said to be notifying the amounts sequentially.
Prioritizing the allocation of household loans limits to savings banks with smaller asset sizes means offsetting the losses arising from handling mid-rate loans by making them up with household loans. Mid-rate loans target borrowers in the bottom 50% of credit scores and are subject to a set interest rate ceiling. Mid-rate loans are mainly used by vulnerable borrowers, so the delinquency rate is relatively high.
As of the end of the first half of this year, the delinquency rate at savings banks was 6.26%, up 0.22 percentage points (p) from the end of last year. With delinquency rates continuing to rise recently, savings banks are said to have reduced loan originations to manage soundness.
The limit distribution for mutual finance institutions is reportedly complete. The Financial Supervisory Service (FSS) granted a common aggregate limit to NongHyup, the National Federation of Fisheries Cooperatives, credit cooperatives, and the Korean Federation of Community Credit Cooperatives (KFCC), and then, based on the end of the first half of this year, allocated additional capacity to those with a smaller excess over the household loans limit.
The Korean Federation of Community Credit Cooperatives (KFCC) and credit cooperatives, which exceeded last year's target and received the "zero net increase" penalty, also secured some room with this target adjustment. The KFCC reportedly received an additional limit of about 300 billion won, and credit cooperatives received between 100 billion and 200 billion won.
After tightening household loans across the board, the government raised the target growth rate for the total volume of household loans from 1.5% to 3% through the Aug. 13 comprehensive real estate finance measures. With the target raised, the entire financial sector can supply an additional 30 trillion won.
An Financial Supervisory Service (FSS) official said, "We are notifying savings banks with larger additional limit allocations first, and plan to wrap up soon."