Curbs on loans drive borrowers to higher-cost savings banks

Tightening lending restrictions at commercial banks are encouraging borrowers to seek higher-cost savings bank loans, government officials reported on Wednesday as the nation works to curb household debt. Annual interest rates on mid-interest loans for borrowers with low to medium credit scores are between 9.7 percent and 16.2 percent, roughly double to triple the average for comparable commercial bank loans.

Savings banks issued more than 491,000 such loans in the first half of this year, a 14 percent increase from the second half of last year and the highest level ever recorded, according to the Korea Federation of Savings Banks. If the current trend continues, the annual total could reach 1 million for the first time. The shift is occurring as banks limit access to household credit, which has traditionally been the primary source of financing for consumers.

In July, KB Kookmin Bank cut the maximum mortgage available to individual borrowers nationwide in half, from 600 million won to 300 million won. Other major lenders, such as Hana Bank, have also restricted online lending channels.