[EDITORIALS]An orderly retreatFinancial institutions are now working vigorously to reduce their loans backed by real estate as collateral. The financial sector has been recklessly increasing such loans until now, but suddenly has begun worrying about the aftermath after the government announced stern real estate control measures. The banks have to reduce real estate-backed loans to each household by combining such loans made to each family member, and the security of the collateral may be threatened if real estate prices suddenly fall.
The trouble is that many households may face a financial crisis if the financial companies decided to collect the real estate-backed loans all at once and rapidly. Subsequently, some financial companies with a large amount of such loans could become insolvent, and we cannot rule out the possibility that the consequences will endanger our economy.
The real estate-backed loans have risen to this dangerous level because many financial companies failed to find investment sources other than the real estate market, while large amounts were made available to boost the economy. Businesses were reluctant to make investments, thus corporate loans were stopped. Due to the aftermath of credit card insolvencies, the firms did not want to increase household loans. Therefore, they turned their eyes to the relatively stable and easy real estate-backed loans, and many firms increased loans in violation of financial regulations.
Some even ascribed the skyrocketing real estate prices in some areas to the reckless competition to make loans. Because financial companies were blinded by the short-term gains, the entire financial sector has become insolvent. The actions of insurance firms, mutual savings banks and capital companies, which belatedly joined the loan-making competition, are particularly worrisome. It is time for the financial sector to reduce the amount of real estate-backed loans not only to respect financial regulations, but also to save itself from the approaching threats.
We want to stress that a sudden and rapid reduction of real estate-backed loans is as dangerous as their sudden and rapid increase. An orderly, gradual reduction is necessary. The nation’s financial regulatory authorities should carefully observe the market and pay special attention to any sign of danger. They should take precautionary measures, and exercise control and monitoring where necessary.