Credit crunch continues despite loosening home loan rules

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Major South Korean banks set to loosen control over expansion of “jeonse” loans for housing, but their grip on personal loans will continue under pressure from financial authorities, industry sources said on Sunday. .

Jeonse is a unique housing rental scheme in Korea, where tenants pay a lump sum deposit instead of a monthly rent on a two-year contract.

NH NongHyup Bank, which decided in August to temporarily stop offering jeonse loans until November 30, will resume jeonse lending services from Monday. Shinhan Bank will begin to drop its borrowing limit of 500 billion won ($ 423 million) for loans taken out for renting homes on the same day, they said.

Meanwhile, starting October 27, the country’s top five lenders – KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH NongHyup Bank – will provide jeonse loans that will not exceed the price gains of jeonse apartments. For example, those who saw the price of jeonse drop from 400 million won to 600 million, the upper limit for loans would be 200 million.

The banks’ cap on the amount of jeonse loans is intended to prevent borrowers from rushing into stock purchases or what is known as “short-term investing,” a situation in which a buyer buys an occupied home. by a jeonse tenant, who pays a lump sum deposit which must be returned at the end of the lease, to benefit from the difference between the price of the house and the amount of the deposit.

The latest move came after the policy-making Financial Services Commission on Thursday pledged to ease regulations on jeonse lending to protect people who actually need to borrow to rent a home. .

“For loans taken out for jeonsees in October, November and December, the ceiling on total loans will be applied flexibly,” said FSC Chairman Koh Seung-beom.

“We will tolerate it even if the growth rate of outstanding household debt exceeds the target range if this is due to an increase in loans for jeonse.”
The financial authority had previously urged local lenders to raise the annual increase in household debt to between 5 and 6 percent this year, against growth of 7.9 percent last year.

Despite the government’s partial relaxation of lending rules, borrowers are likely to be denied personal loans or other types of mortgages under the banks’ strict lending standards.

Hana Bank, for example, will stop extending credit loans for the purchase of real estate from Wednesday until the end of this year, while Woori Bank plans to lower favorable interest rates applied to 11 bank loan products, with the aim of slowing the growth of credit lending.

The outstanding personal loan balances of five major lenders here – KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH NongHyup Bank – stood at nearly 705 trillion won as of Thursday, up 5.3 percent. compared to the 670 trillion estimated in December of last year.

To cope with a sustained increase in credit lending, the FSC should unveil additional debt control measures, focusing on current debt service ratios, or DSRs – the maximum amount of credit loans allowed for individuals relative to their disposable income, by the end of this month.

Authorities still have the option to extend the scope of the current 40 percent RSD, the industry said.

As of July, a borrower is required to repay 40% of their annual income if they buy a house worth more than 600 million won in certain areas, including Seoul and surrounding areas.

By Choi Jae-hee (cjh@heraldcorp.com)


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