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Banks Providing More Loans

Posted October. 24, 2007 08:12,   


“You can borrow as much as 50 million won. How much do you want to borrow?”

A salary man, Park, was surprised to hear that he could borrow that much money at the bank he had visited. Just two and three years ago, credit limits were 10 to 20 million won.

At first, Park borrowed 10 million won and said, “Banks have excessively increased their credit limits, which can leave ordinary wage earners heavily indebted.”

Commercial banks are active at providing loans for salary men with increasing numbers of retail credit loans. A considerable number of people have taken out loans to invest in stocks. So their loans could have an adverse effect when the stock market plunges or the economy goes into a recession.

Available loans are twice your annual income without collateral-

Credit loans provided by banks increased from 179 trillion won last year to 191 trillion won as of June 2007.

Banks are competitively rolling out new credit products and attracting people through street ads and SMS advertising. In the past, individual credit limits varied depending on bank records. But today, loan limits have substantially increased.

Woori Bank has made available ‘Credit for Financiers’, a new product available for employees in financial institutions such as banks, securities and insurance companies. The product lends applicants credit twice as much of their annual income. A person with a 50-million-won income a year can borrow up to 100 million won.

Hana Bank has been aggressively pursing marketing plans aimed at several blue-chip companies.

The Bank of Korea released ‘Household Loans Provided from Depositors’ on Tuesday. The report showed that household loans from banks and the non-banking sector increased by 4.958 trillion won in August, the highest monthly increase this year. Household loans showed 3.3597 trillion won growth, and 86 percent (or 2.8937 trillion won) came in credit loans from banks.

Leveraged Investments in Stock-

Banks saw mortgage loans decline as monetary authorities implemented tighter policies. Therefore, they are putting their attention into credit loans.

Major banks have almost zero default rates in household debt: Kookmin Bank, 0.80%, Shinhan 0.48%, Woori 0.66% and Hana 0.51%. They have increased credit loans based on good records regarding risk management. However, some say that banks are increasing profits in exchange for potential debts.

A bank employee handling retail loans said, “With the booming stock market this year, more customers applied for loans to invest in stocks and funds. One customer invested 120 million won in stocks by receiving a loan without collateral.”

An official at the Bank of Korea pointed out, “With an expanding economy and growing consumption, it is natural to see household debts increasing. But it can be a problem for each household when debts go beyond an acceptable level.”