Financial authorities are reviewing an easing of regulations on relocation loans to support expanded housing supply, but banks expect that actual lending capacity will be limited. They explain that with stringent household debt volume regulations in place and unsecured loans surging, there is insufficient room to handle housing loans.
According to the financial industry on Friday, the Financial Services Commission (FSC) is reviewing measures to improve lending regulations related to redevelopment projects as part of a comprehensive real estate plan. Following proposals from the Ministry of Land, Infrastructure and Transport (MOLIT) and the construction industry, the commission is examining whether there is a need to ease regulations on relocation loans, which are subject to a 40% loan-to-value (LTV) limit.
After all of Seoul was designated a speculative overheating zone last year, relocation loans have been subject to the same regulations as ordinary mortgage loans. The market has pointed out that applying the same standards used for ordinary mortgages to funds intended not for purchasing a home but for securing temporary housing during the construction period is excessive. Although financial authorities are still at the review stage, some interpret this as a signal to approach loans needed for housing supply separately from ordinary loans.
However, banks believe that even if regulations are eased, actual supply will be limited. According to the office of People Power Party lawmaker Lee Yang-soo, the household loan growth rates presented by financial authorities to the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) effectively converge to zero. This year's household loan growth targets are 0.71% for Woori Bank, 0.70% for Hana Bank, 0.70% for NH Nonghyup Bank, 0.69% for Shinhan Bank, and 0.59% for KB Kookmin Bank. The annual total each bank can increase ranges from 800 billion to 900 billion won, meaning they must essentially maintain their balances from the end of last year.
The problem is that with the recent stock market boom, unsecured loans are growing rapidly, putting volume management on alert. As of the end of May, several commercial banks' unsecured loan balances already far exceeded their targets. Shinhan Bank should have reduced its unsecured loan balance by 24.2 billion won from the end of the previous year through the end of May, but it actually increased by 169.6 billion won. Hana Bank should have cut 36.4 billion won during the same period, but its balance rose by 172.5 billion won.
The burden of managing household loans has grown further since last month. As of the 2nd of this month, the five major banks' unsecured loan balance stood at 109.1648 trillion won. That is 2.6494 trillion won more than at the end of May (106.5154 trillion won). Expanded stock market volatility drove increased use of negative-balance accounts (revolving credit lines) for debt-fueled investment.
Ultimately, banks say they have no choice but to adjust housing-related loans to meet the household loan volume. Negative-balance accounts, the main culprit behind the rise in unsecured loans, are structured to be drawn down within previously set limits, making it difficult to curb them through additional regulation. "The usage rate of negative-balance accounts at major banks is still in the 40% range, so they could increase further," an official at a commercial bank said. "Even if relocation loan regulations are eased, the scale banks can handle is limited because they must meet volume regulations."
