[김유성의 금융CAST]Will tightening bank credit loans work?

[이데일리 김유성 기자] Sudden changes have side effects. If you suddenly gain a lot of weight or lose weight, you should suspect a body abnormality. Even if there is nothing wrong now, you may suffer from illness in the future.

Same with money. Whether it’s income or debt, a sudden increase can be bad. Suppose, for example, that oil suddenly comes out of Korea and records huge exports. Oil companies would like to accumulate money in their barns and the government would like to increase tax revenues, but the general public is likely to suffer from high inflation.

Why? When a huge amount of foreign currency comes into Korea as a result of oil exports, the value of the won rises sharply. This is due to the increasing demand to convert foreign currency into Korean won. The won is strong and the amount of money circulating in the Korean market is increasing. Even the same thing, you have to pay more money than before.

When happy imaginations are rapidly applied to reality, they become a bud of unhappiness. The government is necessary in this case. The pace of change should be slowed down. Even if some people show dissatisfaction, we must make time for our people and our society to adjust.

The happy imagination of’making a lot of money’ is expected to have such a side effect, but what about the vice versa, where debt increases?

Debt, or rising debt, is a bad sign in many ways. This could mean that you are not making good money right now. In this situation, just increasing your debt is a big burden later on.

The relationship between countries is similar. Your debts now can be a burden for future generations. For this reason, some are both worried and criticized about the recent government debt.

Would it be different from ordinary furniture? Just a few figures are anxious.

According to the International Finance Association (IIF)’s’World Debt Monitor’ report, Korea’s household debt ratio to GDP in the first quarter of this year was 97.9%, the highest among 39 countries surveyed. Japan’s household debt to GDP ratio was 57.2%, where government debt exceeded 220% of GDP.

The pace of increase is also not surprising, and our ratio of household debt to GDP increased by 5.8 percentage points in the same period last year (compared to the first quarter of 2019), the third largest in the world. It was after Hong Kong (9 percentage points) and China (6.4 percentage points).

The amount of loans that banks lend to individual households has also increased a lot. The increase in household loans of the five major commercial banks (Shinhan, Kookmin, Hana, Woori, and Nonghyup Banks) was 56,225.4 billion won from January to November, which was 9.2%. It has increased by less than 1% per month, but it is a high level of increase even though the number of people in charge of emergency loans and real estate prices increased due to Corona 19.

Loans with a greater growth rate are credit loans. During the same period (January-November), the increase in credit loans of the five major commercial banks was 21.6%. That’s an unprecedented rate of increase. Considering that the risk of insolvency is greater than that of other loans, this is a level of concern for banks and governments.

Credit loan growth rate (Monthly). In the second half of this year, it can be seen that it has increased rapidly. (Source: Collected by each company)

In particular, in case of insolvency in credit loans, the bank must bear the loss. If the economy gets worse and more households are unable to pay for it, the bank’s expected losses will also increase. Moreover, this year, there were many emergency loans due to the economic downturn caused by the spread of Corona 19.

In this context, the government and banks are concerned about the rapid rise in credit loans. Moreover, it is now in the Corona 19 situation. Although unprecedented securities are booming, the market for small business owners and self-employed people is in crisis to the point of fear of collapse. It could be a trigger for a chain of credit crises.

There is money that banks are stocking up against the possibility of going bad. Although the term is different for each bank, it is collectively referred to as’provision for loan loss’. This provision for bad debt covers the losses incurred by loans.

In the case of Kookmin Bank, the amount accumulated as provision for bad debt in the third quarter of this year reached 3138 billion won. Considering that in the third quarter of 2019, we accumulated KRW 54.3 billion, we have accumulated about five times more. The situation is similar for other banks. Much more than the previous year was deducted from profits and accumulated as provision for bad debt.

The reason why banks are increasing their bad debt provisions is that risk-weighted assets such as credit loans (which can be called so) have increased dramatically, but they are more negatively aware of the repayment capacity of lenders than before. We have the worst in mind that this year and next year, the overall economic situation could be bad.

Still worrying. The situation is that it is a low interest rate situation. Inevitably, loans are bound to increase. Even if a bank is jailed, it is useless if the number of loans from mutual credit banks, savings banks, and insurance companies increases. It would be a transfer of the possibility of insolvency.

Let’s come to the conclusion.

The tightening of banks’ credit loans must be a symptomatic therapy. There is a need to regulate lending for low and medium creditors who are more likely to be insolvent than high creditors, because there is no proper way to do this. (It would be the degree to restrain those who take credit for investing in stock)

Besides, there are many places to take loans outside of the bank. It is the second financial sector. Loan restrictions on banks, in other words, are like sharing a savings bank with the possibility of insolvent.

The fundamental solution is to raise interest rates, which is not easy due to the current economic situation. Rising interest rates can increase the burden on existing lenders and lead to a series of lending insolvency. Trying to catch bedbugs can lead to burning them. We have no choice but to see the asset bubble as it is.

It is a dilemma in our economy that is covered by’KOSPI 2800′ and Seoul house price of 1 billion won (based on selling price). Banks’ signs of credit loan regulation are only one aspect.