Bank mid-rate loans will count only 30% toward total lending limits... "Expand support for low-income finance"

[Financial News] As the government doubles this year's target for managing household loan growth from 1.5% to 3.0%, banks will also gain much more room to supply mid-rate loans. The Financial Supervisory Service has decided to use the expanded lending cap for the policy goal of "expanding support for low-income finance," and will therefore exclude 70% of mid-rate loans from total lending management.
According to the financial sector on the 27th, the Financial Supervisory Service notified banks of additional lending limits after expanding the total target under the Aug. 13 real estate measures. It reset the annual lending cap after doubling the household loan target under those measures.
The Financial Supervisory Service has decided to exclude loans for actual demand, such as group loans, from the lending cap, while sharply increasing incentives for mid-rate loans. A plan to exclude 50% of existing mid-rate loans from the cap had been discussed, but that share was raised to 70%.
At present, banks count mid-rate loans for borrowers in the bottom 50% of credit scores at 30% of the amount, rather than 100%, within the household lending cap. For example, if a bank extends 1 million won in a mid-rate loan, 700,000 won is currently reflected in the household lending cap after a 30% deduction. Going forward, with the expanded incentive, only 300,000 won will be counted this year after a 70% deduction.
Not only banks, but also second-tier financial institutions, will have more room for mid-rate lending. That is because all mid-rate loans extended during the remainder of this year will be excluded from the household lending cap.
At present, when savings banks and mutual finance cooperatives extend private mid-rate loans to borrowers in the bottom 50% of credit scores, 80% of the amount is excluded from the cap. For example, if they extend 10 million won in private mid-rate loans, only 2 million won is counted as an increase in household lending under the cap.
For credit finance companies, 40% of mid-rate loans had been excluded from the cap, but now the full amount can be excluded. As the incentives for mid-rate loans expand, there is also expected to be a modest increase in room for ordinary mortgage loans and credit loans. That is because a smaller balance will be reflected in the cap, leaving more room for other types of lending.
Meanwhile, the Financial Supervisory Service is reported to have additionally allocated 70% of the household lending cap it notified banks of earlier this year. Separate from group loans, which will be excluded from the cap, this creates additional room for ordinary mortgage loans and credit loans.
Nonghyup Bank, however, was penalized. Financial authorities set the reference date for calculating household lending targets at the end of June this year. Nonghyup Bank was reportedly far above its target as of the end of June. It had brought the figure below target by the end of July through various "voluntary regulations," but because the benchmark was set at "the end of June," it ultimately received a penalty.

[email protected] Park Moon-soo Reporter