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KB Savings Bank has increased its lending to households by increasing internal limits and reducing interest rates, without a strict review process and proper oversight.
South Korea’s Financial Supervisory Service (FSS) has reportedly warned KB Savings Bank about its lax screening of unsecured loans as household debt rises in the country.
According to data from the BOK (Bank of Korea), household debt reached KRW 1.76 quadrillion (USD 1.5 trillion) in the first quarter of this year, an increase of 9.6% year-on-year. Household debt includes loans from banks, insurers and other private and public lenders as well as mortgages.
The herald of Korea reports that the FSS issued a warning to KB Savings Bank on Tuesday, September 7 after the bank increased the amount of credit loans to households since July 2020 by increasing the loan limit on its lending program and offering a rate reduced interest rates without a strict review process and proper oversight.
“Attempts by banks to impose higher loan limits or reduce lending rates without a thorough review could harm the debt service capacity of households and the financial soundness of banks,” an official said. the FSS.
The FSS warning is considered a warning and is not part of the four-level sanction system for financial institutions.
KB Savings Bank was also asked to step up its risk management after its capital adequacy ratio fell 4 percentage points to 12.3% in February.
“There is a need for savings banks to put in place medium and long-term risk management measures to deal with risk-weighted assets as well as to develop plans to respond to economic fluctuations and other deteriorating conditions. commercial, â€said the FSC official.
In August, the FSS advised banks, including second-tier banks such as savings banks and mutual financial cooperatives, to tighten their lending standards and cap unsecured loans to individuals below their own. annual income.
According to local reports, borrowers turned to foreign banks and provincial banks for new loans, often at higher interest rates. In Korea, foreign banks are not required to follow government guidelines, and provincial banks are sometimes excluded because they have a small number of borrowers.
However, foreign and provincial banks are also expected to tighten their lending standards. Although specific plans have yet to be announced, Citibank Korea and Standard Chartered Bank Korea are expected to cap lending later this month.
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