Government to put cap on savings bank loans

The government is tightening limits on loans from savings banks next year.

According to the Financial Services Commission (FSC) Tuesday, the loan to deposit rate at savings banks will be limited to 110 percent starting next year. It will be further tightened to 100 percent in 2021.

The new regulations will affect 69 savings banks that have more than 100 billion won ($84 million) in loans as of the end of 2018.

However, government policy loans targeted at low-income households will not be affected.

The government is also setting the credit ceilings by industry.

For unsecured loans borrowed from savings banks for project finances, the limit is at 20 percent of the existing capital. The limit for construction is at 30 percent and real estate at 30 percent.

The FSC in a statement said the tightening of the loan is to secure the management soundness of financial companies by allowing loans to be provided within the deposit pool.

The FSC said the loan to deposit ratio, which fell to 75.2 percent at the end of 2012 from the 80 percent range in 2009 and 2010, has in recent years risen to 100.1 percent as of the end of 2017 due to an increase in loan demands.

Household loans surged 32.6 percent in 2016 and 14.1 percent in 2017. Individuals that borrowed loans for their businesses grew 20.2 percent in 2016 and 35.5 percent in 2017.

“While the increase in household loans has somewhat slowed, those that borrowed on business loans have increased,” said an FSC official. “As such, there’s a need for loan management.”

Recently, the Moon Jae-in administration has been tightening regulations against loans as the real estate market since summer has been showing signs of overheating, especially in Seoul.

As the government has made it tougher to borrow loans from banks, many have turned to nonbanking financial institutions, including savings banks that offer higher interest rates, to get the loans needed for real estate purchases.

According to Korea Deposit Insurance, project finance loans borrowed from savings banks in the first half of this year amounted to 5.6 trillion won. That’s 1.3 trillion won more than the 4.3 trillion won in 2011, which was just before the savings banks insolvency crisis.

“As the government recently has been laying out various regulations for stabilizing the housing market, the real estate market could quickly enter a recession,” said Rep. Jang Byung-wan of the Party for Democracy and Peace. “We have to closely monitor the project finance loans borrowed on real estate development as it could lead to massive insolvency.”

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]