A rush for loans at internet banks is intensifying as the country’s five largest banks continue to impose lending restrictions. (Image courtesy of Kobiz Media)
SEOUL, Sept. 3 (Korea Bizwire) — In South Korea, a rush for loans at internet banks is intensifying as the country’s five largest banks continue to impose lending restrictions.
Customers are flocking to online lenders, which are perceived as more accessible, in a phenomenon known as “open runs” – where borrowers attempt to secure loans as soon as application windows open.
On September 2, banking industry sources reported that even financial institutions that previously had room in their total loan management are now joining the trend of tightening lending practices.
Kakao Bank, a prominent internet-only bank, announced that starting September 3, it would limit its mortgage loans for home purchases to households that do not already own property.
This marks a significant change from its previous policy, which allowed loans to those who owned up to one property.
The bank will, however, continue to offer mortgages for living stability purposes to households owning one home or less.
In addition to these changes, Kakao Bank has reduced the maximum mortgage term from 50 years (for those aged 34 or younger) to 30 years.
For mortgages intended for living expenses, rather than for lease deposit refunds or loan repayments, the bank has imposed a limit of 100 million won.
These measures come just a week after Kakao Bank raised its interest rates in response to the surging demand.
In August, the number of inquiries for mortgage limits and rates increased by over 50% compared to June.
Industry analysts suggest this surge may be partly due to a balloon effect from other banks’ loan management efforts initiated in July.
Kakao Bank’s attractive offer of waiving early repayment fees entirely, coupled with lower interest rates compared to other banks, likely contributed to its popularity.
A Kakao Bank representative explained, “While our supply is fixed, demand has skyrocketed. We had to adjust our policies to minimize ongoing customer inconvenience.”
iM Bank, which transitioned to a commercial bank in May, faces similar challenges. One of its Seoul branches has temporarily suspended household loan applications until October.
Despite having available lending capacity, the bank has been overwhelmed by demand attracted by its reputation for offering the lowest mortgage rates.
iM Bank offers loan rates (3.25-3.30% per annum) that are about 1 percentage point lower than its competitors. Even with an increase in loan officers, customers report extreme difficulty in making contact.
While iM Bank has been directing customers to its mobile application for non-face-to-face services, it’s struggling to manage the influx of applications.
The bank opens its app for mortgage applications daily at 9 a.m., but the daily quota is typically filled within 10 minutes, leading to system overloads.
A banking industry insider commented, “It’s unclear how far the balloon effect from regulatory measures will spread. For now, we’ll need to observe how the measures announced by various banks play out.”
M. H. Lee (mhlee@koreabizwire.com)
