About 16% of new credit loans at major South Korean savings banks are products exempt from annual income limits and household lending caps. The exemptions offer breathing room to low- and middle-income borrowers squeezed by blanket lending curbs, though some warn that the widening list of carve-outs is making household debt harder to manage.
Six savings banks — KB, OK, SBI, Shinhan, Yegaram and Korea Investment — extended 227.1 billion won ($158 million) in mid-rate living stability loans between June and August, according to the office of Park Jun-tae, a lawmaker on the National Assembly's National Policy Committee. That figure accounts for 16.1% of the 1.41 trillion won in total credit loans the six banks issued over the same period. The mid-rate living stability loan, launched in late June, lends up to 10 million won to borrowers in the bottom 50% by credit score.
Customers who used the product last month borrowed an average of 8.06 million won. Borrowers who took out the loan had an average credit score of 750 as of August. The product is seen as functioning as a source of quick cash for borrowers with mid- to low credit scores seeking emergency living expenses.
But as the volume of lending excluded from the household debt framework grows, so do concerns about the effectiveness of the overall caps. The mid-rate living stability loan is an unusual product in that it qualifies for multiple exemptions from household lending rules. Under the June 27 measures announced last year, the government capped credit loans at a borrower's annual salary but excluded this product from that limit. The product's volume is also fully excluded from the household lending targets that each financial company must manage individually. The carve-outs were a response to criticism that the stringent rules introduced after the June 27 measures had cut off funding channels for low- and middle-income households.
Still, the more exemptions pile up, the weaker the controls become. Loans not subject to the debt service ratio (DSR) accounted for 70.5% of new household lending across the financial sector in the second quarter, according to the Bank of Korea. That was the highest share since the central bank began compiling the data in the third quarter of 2022. "It is difficult to maintain policy consistency by tightening household lending and then expanding exemptions to patch up the side effects," Park said. "The regulatory framework should be overhauled so that financial support reflecting low- and middle-income households' funding needs and repayment capacity goes hand in hand with household debt management."