'My overdraft is locked' — credit lines stay tight even as household loan cap doubles

Park, an office worker, has been making the rounds at banks recently trying to raise the limit on his overdraft account. After a family member was suddenly hospitalized, the daily caregiving cost of 160,000 won ($115) began to strain his finances. Every attempt to increase his limit has failed, and opening a new overdraft account at a different bank has proven equally difficult.

The government has doubled its household loan growth target for this year from 1.5 percent to 3.0 percent, yet the bar for credit loans — including overdraft lines — is not expected to ease significantly for now. Discussions are underway to channel the additional lending capacity primarily toward housing-related demand such as balance-payment loans and group loans, and banks are reluctant to loosen credit loans that have expanded rapidly this year.

Financial regulators and banks are reviewing plans to direct the expanded household loan quota mainly toward mortgage loans and group loans, following the Aug. 13 comprehensive real estate finance package, according to financial industry sources Sunday. The Financial Supervisory Service recently summoned loan officers from major banks and asked them to increase the supply of group loans to reduce the rush for balance-payment loans.

The complication is that mortgage loans and credit loans are not managed under separate quotas — both fall under a single household loan ceiling. Allocating more capacity to balance-payment and group loans therefore leaves less room for credit loans such as overdraft lines.

"With the mortgage supply issue taking priority, it will be difficult for credit loan regulations to ease quickly," an official at a major commercial bank said. "With no concrete plan yet on how to distribute the expanded household loan capacity across different loan types, loosening overdraft lines first carries the risk that funds could flow into the stock or real estate market."

Another commercial bank official said the direction would depend on where share prices go, noting that stock market trends would be a key variable determining the pace of overdraft growth going forward.

Banks have in practice maintained their tight grip on overdraft lines even after the quota expansion. K bank suspended sales of new overdraft accounts with limits of up to 300 million won starting June 16, and has since extended the suspension — originally set to run through the end of July — through Aug. 31.

Kakao Bank cut its maximum overdraft limit from 240 million won to 100 million won in June. It has also introduced a measure that reduces limits by up to 20 percent at renewal for accounts with a credit line of 50 million won or more that have used less than 20 percent of their limit over the past six months.

Toss Bank cut its maximum overdraft limit for new accounts from 150 million won to 50 million won, and allowed reductions of up to 40 percent on existing accounts whose limit utilization rate fell below 40 percent over the past three months. Some other commercial banks have also adopted policies to cut limits by up to 20 percent and restrict renewals on overdraft accounts that have gone unused for extended periods.

Behind banks' reluctance to ease overdraft restrictions is the rapid growth in credit loans this year. Credit loans at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — each grew by more than 2 trillion won in May and June, and rose by more than 1 trillion won again in July. In the second quarter, the increase in other loans — a category that includes credit loans and securities-firm credit extensions — reached 12.8 trillion won, outpacing the 12.2 trillion won increase in housing-related loans.

Overdraft lines pose an additional control challenge: because borrowers can draw on their approved limit at any time, banks find it difficult to manage the pace of growth in advance.

Meanwhile, the tighter controls appear to have slowed credit loan growth recently. The combined credit loan balance at the five major banks edged up just 13.1 billion won — from 109.75 trillion won at the end of last month to 109.77 trillion won on Aug. 13. Banks remain on alert, however, that demand for overdraft lines could revive depending on how the stock market moves.