NH NongHyup Bank tightens lending after breaching annual cap, raising fears of spillover to rivals

NH NongHyup Bank is moving to sharply tighten household lending after a surge in loans — concentrated in regional areas — pushed the bank past the annual ceiling set by financial regulators in the second quarter. With a buoyant stock market continuing to fuel debt-financed investment, industry watchers expect borrowing demand to shift to the remaining four major banks.

Financial industry sources said Thursday that regulators recently ordered NH NongHyup Bank to strengthen its household loan management. Household lending had declined year-on-year through the first quarter but accelerated sharply in the second quarter. As of the end of May, the bank's year-on-year increase in household loans had already exceeded its annual target, sources said.

Mortgage borrowing by regional customers appears to have contributed significantly to the surge. In April, NH NongHyup Bank unveiled a "regional financial consumer support program" aimed at encouraging settlement outside major cities and promoting local reinvestment. The package — capped at 1 trillion won (about $657 million) — offered non-metropolitan mortgage customers a preferential rate discount of 0.2 percentage points and covered stamp duties. Unlike real estate regulations, the financial regulator's household loan volume limits apply uniformly across all regions without geographic differentiation. A rise in unsecured credit loans driven by debt-financed stock investment has also been cited as a contributing factor.

In response to the regulator's directive, NH NongHyup Bank plans to raise its lending bar for now. Demand-suppression measures, including interest rate increases, are expected.

The bank has already been managing daily caps on non-face-to-face applications for unsecured credit loans, mortgages and jeonse loans since mid-last month. For mortgages in particular, it restricted enrollment in mortgage credit insurance, or MCI — a move that effectively reduces the maximum loan amount available to borrowers. Early this month, the bank raised rates on both fixed- and variable-rate mortgages by 0.20 percentage points each. It is also waiving early repayment fees on mortgages through the end of this month to encourage paydowns.

With one of the five major commercial banks raising its lending threshold, concerns are growing that demand will migrate to rival institutions. Government real estate regulations have somewhat dampened demand for mortgages in the greater Seoul area, but appetite for unsecured credit loans remains strong on the back of a rallying stock market.

According to the Bank of Korea's lending attitude survey, bank loan officers expected demand for unsecured credit loans to persist through the second quarter of this year, driven by household living expenses and stock market investment.

Financial regulators earlier lowered the target growth rate for household lending across the financial sector to 1.5 percent this year from 1.7 percent last year, shrinking the overall volume of loans institutions can extend. Some mutual finance cooperatives and savings banks have been subject to a "zero net increase" requirement that in effect bars them from growing their loan balances at all this year, making it inevitable that some second-tier borrowers will turn to commercial banks.

The four major banks still have room within their household lending limits. As of June 5, the combined household loan balance at KB Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank had fallen 1.9334 trillion won from the end of last year, excluding policy loans. Lending has historically skewed toward the second half of the year, however, leaving room for any of the banks to tighten conditions at any time. KB Kookmin Bank has already done so, cutting the preferential rate on variable-rate mortgages by 0.20 percentage points effective June 8.

"When one bank raises its threshold, the others inevitably feel the impact," a lending executive at one commercial bank said. "The credit loan demand is there, but the amounts involved aren't huge — still, we're keeping a close eye on it." A separate official at another commercial bank said: "When one bank tightens, that demand has nowhere to go but another bank. That kind of spillover has always happened."

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