Bank loan curbs drive borrowers to higher-cost savings banks

Stricter lending rules imposed by commercial banks are forcing more borrowers towards savings banks, where interest rates are notably higher, according to industry experts speaking on Wednesday. Annual interest rates on mid-range loans for borrowers with moderate credit ratings typically hover between 9.7 percent and 16.2 percent, approximately double or triple the standard rates offered by commercial banks.

In the first half of this year alone, savings banks granted over 491,000 such loans, marking a 14 percent increase from the same period last year and setting a new record high, according to the Korea Federation of Savings Banks. If this trend continues, the annual total could surpass 1 million for the first time. The migration is taking place as banks are tightening access to household credit, which has historically been the primary financing mechanism for consumers.

In July, KB Kookmin Bank cut the maximum mortgage available to individual borrowers nationwide in half, reducing it from 600 million won ($212,000) to 300 million won. Other major lenders, such as Hana Bank, have also placed restrictions on online lending channels.