Loan program won’t be expanded
The Financial Services Commission said Wednesday it has no plan to expand its new fixed-rate loan program to include nonbanking financial institutions, despite the product being much more popular than expected.
There has been growing demand for the loan program to be extended to users of nonbanking financial entities, who are generally in a worse financial state than people who are eligible to take out loans at banks.
People taking out loans from nonbanking financial institutions such as savings banks and insurance companies have a lower income or credit rating, which makes it hard for them to get a loan from a commercial bank.
As a result, the loan program launched on Tuesday attracted huge interest from people, regardless of the institutions where they have their loans.
“[On the first day] a large group of people who have debts at nonbanking financial institutions who are therefore not eligible for the loan conversion program also made inquiries,” said Kwon Dae-young, director of the financial policy department at the FSC, at the Press Center in central Seoul on Wednesday.
The loan program, which converts existing short-term loans on a flexible rate into long-term fixed rate loans with an interest rate of 2.5 to 2.6 percent has been available since Tuesday at 16 banks, including KB Kookmin and Shinhan.
On the first day, it attracted huge interest that was far more than what the banks or the FSC had anticipated, with 41,247 requests approved for a total of 4.92 trillion won ($4.5 billion) in mortgages. This is just short of the 5 trillion won monthly quota set by the FSC. The financial authority set the annual limit for the loan program at 20 trillion won, with a 5 trillion won monthly ceiling.
On Wednesday, the rush of visitors lost some of its momentum but there were still crowds.
By the end of the day, 29,792 requests had been approved. The value of the approved loans, when converted to the lower and fixed interest rate was 3.19 trillion won.
The FSC official, however, was doubtful the program would succeed if it were available at nonbanking financial institutions, because people who take out loans from such companies usually struggle to repay their debts. The new program would be particularly difficult because it requires a steady payment of interest plus principal loans.
“We considered the issue since we started designing the loan program, but there are still unresolved concerns,” Kwon said.
He said that in the past, nonbanking financial companies have released a similar product with a ceiling of roughly 100 billion won, but failed to attract customers.
“It wouldn’t be easy for customers using nonbanking financial institutions to take part in the new loan program,” he said.
It also has become evident that the FSC already ditched its monthly ceiling and decided to allow the loan program within the 20 trillion won limit.
In just the two days that the loan program was introduced to the market, it far exceeded the monthly limit at 8.11 trillion won.
The government-promoted loan program is also influencing the interest on other government loans. The state-run Korea Housing Finance Corporation will lower the interest rate on its long-term fixed interest loan Bogeumjari starting in April. After the rate cut, the interest of the loan will be at a record low.
BY LEE HO-JEONG [firstname.lastname@example.org]