Low-income households and genuine demand borrowers in South Korea are finding it increasingly difficult to secure loans as financial institutions tighten restrictions to meet their year-end household loan reduction targets due to regulatory pressures.

According to financial industry sources on Wednesday, the Korean Federation of Community Credit Cooperatives (KFCC) recently notified its individual Community Credit Cooperatives (CCs) of its decision to stop recruiting household mortgage loans through loan brokers starting from Thursday.

CCs typically process most of their mortgage loan contracts, such as balance loans for large apartment projects through loan recruitment corporations. These brokers handle complex tasks such as explaining loan procedures and guiding required documents.

Given that a significant portion of mortgage loans from mutual financial institutions, including CCs, are facilitated by loan brokers, the latest decision is bound to cause confusion for buyers who urgently need balance loans. Borrowers who have been relying on CCs‘ brokers for their balance loans also now need to find alternative solutions.

The KFCC’s decision appears to be driven by financial regulatory pressures.

Financial authorities are focusing on preventing a “balloon effect,” in which reductions in household loans by commercial banks lead to increased lending in secondary financial sectors.

Authorities have recently convened meetings with secondary financial institutions such as agricultural cooperatives, CCs, regional banks, and internet-only banks to monitor trends in household debt management. The KFCC has also taken measures such as suspending mortgage loans for multi-homeowners.

Access to policy financial products for low-income households has also become more challenging. Banks currently offering Sunshine Loan Youth products, such as Shinhan Bank, state-run Industrial Bank of Korea (IBK), and Jeonbuk Bank, are setting daily limits on loan availability, according to the sources.

This development is leading customers to rush to access bank apps every day at 9 a.m. when operations begin to apply for loans. Due to high demand, waiting numbers can reach into the hundreds, and there are many cases where even customers with numbers in the 20s fail to secure loans.

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