Credit crunch gets real for households as banks hit limits early

It's only going to get tougher for households to borrow from banks as the year wears on.

The government is trying to cap on-year household debt growth at around 6 percent, and major commercial banks are already close to that target.

They only have about 13 trillion won ($10.9 billion) left to lend between now and Dec. 31, and soon enough they may be forced to suspend some of their loan programs. NongHyup Bank has already done just that.

As of Oct. 7, loans outstanding to households by the five largest commercial banks in the country — KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NongHyup Bank — totaled 703.44 trillion won. That is 4.97 percent more than the 670.15 trillion won since the beginning of the year.

NongHyup Bank led, with a 7.14 percent increase. It was followed by Hana Bank, at 5.23 percent, KB Kookmin Bank, at 5.06 percent, Woori Bank, at 4.24 percent and Shinhan Bank, at 3.16 percent.

If the banks push the cap to 6.99 percent, loans outstanding could go as high as 717 trillion won. That would allow for some 13.55 trillion won of fresh loans through the end of the year.

Considering that lending to households from the banks grew by 13.78 trillion won during the July-September period this year, limiting debt growth to 13.55 trillion won in the fourth quarter may not be easy.

This is why some banks have suspended some lending for the time being.

In August, NongHyup Bank suspended the writing of new mortgages and loans for jeonse lump-sum long-term deposit lease contracts until Nov. 30.

Internet-only KakaoBank suspended a number of loan products this month, including overdrafts and jeonse loans, until the end of the year.

Other banks are tightening credit in other ways.

From this month, KB Kookmin Bank is monitoring loans extended by branch. If a monthly limit per branch has been reached, that branch must stop issuing new credit until the next month. The monthly limit per branch is reportedly between 500 million won and 1 billion won. Woori Bank adopted a similar system last month.

Banks are also lowering the upper limit on loans available to borrowers.

KB Kookmin Bank lowered its upper limit on multiple loan programs from the end of last month.

A notable change was in its jeonse loan system. Previously, a borrower was able to take out 80 percent of the required deposit for a jeonse contract regardless of any previous jeonse contracts. Under new guidelines released last month, new jeonse loans will be reduced by the size of existing jeonse contracts.

So, if a borrower already has a jeonse contract with a deposit of 400 million won and is trying to borrow to sign a new jeonse contract priced at 600 million won, the borrower can only take out a loan for the difference in the two contracts, which is 200 million won in this example.

Previously, the borrower would have been able to take out 480 million won in loans, 80 percent of 600 million won.

Hana Bank will follow with the same jeonse loan limitations from Oct. 15.

Toss Bank, which opened Oct. 5 and is the country's third internet-only bank, is also feeling the heat.

As of Oct. 8, it had already extended 300 billion won of loans, which is 60 percent the 500 billion won limit recommended by the financial authorities. At this pace, the bank might have to suspend its loan programs in the next week.

"As regulations have been placed to tighten loans to households, demand for loans is ballooning at banks that still offer loans with relatively easier terms," a source from a local commercial bank said. "In the end, banks could race to suspend all loan programs one by one."

The financial regulators are not letting up.

They are scheduled to release additional measures to curb household debt mid-October, and they are considering advancing the schedule for imposing debt service ratio (DSR)-related regulations. The DSR is the ratio of debt payments to total income.

In July, a 40-percent DSR was applied to mortgages for properties valued at over 600 million won, down from the previous 900 million won, and those with more than 100 million won in unsecured debt.

While tighter DSR regulations were to be implemented in two stages, in July next year, and in July 2023, the regulations could be implemented earlier.

BY AHN HYO-SUNG, KIM JEE-HEE [kim.jeehee@joongang.co.kr]