A shortsighted solution

Commercial banks have abruptly hit the brakes on consumer loans. People facing hardship due to Covid-19 and those who relied on borrowing for housing and stock buying are panicking.

NH Nonghyup Bank announced it won’t be extending new housing loans from Aug. 24 to the end of November. Raising the ceiling in existing loans or refinancing loans will also be denied. Umbrella lenders like the National Agricultural Cooperative Federation and the Korea Federation of Livestock Cooperatives will also stop extending group loans. Woori Bank and Standard Chartered First Bank separately announced their temporary suspension of rent loans and mortgage loans. Other banks plan to allow credit loans only up to the borrower’s annual salary.

Banks have suddenly turned hawkish after the changes in the chiefs of the financial policymakers. Shortly after his inauguration on Aug. 6, Jeong Eun-bo, new governor of the Financial Supervisory Service, summoned bank officials to order them to lower their credit loan ceilings. Koh Seung-beom, nominated as the chief of the Financial Services Commission, vowed to employ “all possible means to curtail household debt.” NH Nonghyup Bank is reported to have had received a strong warning after its household loan ratio exceeded the regulatory threshold of 5 percent. This is state-led financing.

Household debt has been surging at an alarming pace. Debt reached 1.936 trillion won ($1.6 billion) as of July, doubling the gross domestic product. The on-year rise of 9.5 percent is the fastest among developed countries. Household debt control is necessary so as not to further fan inflationary pressure and to lessen the shock from the imminent rate hike. The government may also be hoping to tame the runaway housing prices through loan regulations.

But the universal measure could harm people who desperately need to borrow. Household debt has spiked because of Covid-19 that has been drawn out for nearly two years, as well as a jump in housing prices as a result of the government’s real estate policy failures. Housing prices have become unrestrainable due to the government’s all-regulatory measures without supply backup. Due to a loss of faith in government policy, people are doing all they can to buy homes. People without homes instead must seek loans to afford the alarming jump in rents.

People are struggling to find places to live if they cannot find ways to resolve soaring rents. The suspension in household loans is causing serious confusion to those who should move out after their leases expire. Financial authorities and banks must come up with more detailed measures instead of resorting to a shortsighted solution.