New loan rules lead to heavy traffic at banks, on bank apps

A customer consults with a bank clerk about borrowing money in central Seoul. [YONHAP]

Koreans rushed to bank branches and bank apps to borrow money last weekend ahead of a revision in lending regulations, with at least one site seizing up as a result of the traffic.

The Financial Services Commission (FSC) on Nov. 13 announced that it will strengthen regulations to control household debt, which has spiraled to record levels. The FSC said it is changing the debt service ratio (DSR) rules on borrowers with cumulative unsecured loans of 100 million won ($90,500) or more.

The DSR is the annual loan payments divided by annual income.

Under the new regulations, 40 percent of DSR will be applied to high-income individuals who earn more than 80 million won annually with over 100 million won of total unsecured loans. In other words, a high-income individual who already has over 100 million won of unsecured loans might not be able to get additional unsecured loans if their total annual debt payments exceed 40 percent of their annual income.

When anyone who owes banks more than 100 million won purchases a property in the regulated area, they must pay back the original principal in two years. The goal is to prevent people from borrowing money to invest in real estate. The regulations will take effect on Nov. 30.

To get under the wire and avoid these new rules, Koreans flocked to the banks to apply for loans.

According to five commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — the amount of new unsecured loans issued the weekend of Nov. 14 and 15 stood at 84 billion won, nearly a threefold increase from the previous week.

As of Nov. 16, the total amount of outstanding unsecured loans held by the five commercial banks stood at 130.5 trillion won —1 trillion won more than that of Nov. 12.

“We received so many calls from customers regarding the changes in unsecured loans asking when the regulations take into effect,” a source from a commercial bank branch in Songpa District, southern Seoul, said.

Bank apps got a lot of hits when Kakao Bank, an online-only bank, crashed Monday morning due to the flood of users.

“The loan section of the app temporarily suffered a delay during the weekend,” said a spokesperson for Kakao Bank.

Some people criticize the government’s announcement, arguing that it is an unreasonable decision and that many Koreans are suffering from surging real estate prices and prolonged economic uncertainties.

“Since the government came up with tightened regulations on real estate, apartment prices, as well as jeonse, or long-term housing deposits, prices are skyrocketing. It is nearly impossible for a person to purchase even a very small-sized flat in Seoul,” 50-year-old Lee Moon-sook said. “It no different than telling us to not purchase a house.”

Commercial banks predict that demand for unsecured loans is likely to increase further for at least two more weeks.

“People who had hesitated to borrow money are expected to apply for unsecured loans from now on,” said a source from a commercial bank.

BY SUNG JI-WON, CHEA SARAH [chea.sarah@joongang.co.kr]