To deal with household debt which is highly uprising these days, financial authorities said they would lower the additional loan-deposit rate.
This measure is additional one after the ‘comprehensive plans at 6.29’. Contrary to expectations, commercial banks have not shown active participations upon decreasing loan-deposit ratio. Also, at the same time, a series of violations that are against guidelines have occurred so far.
Plus, the point that household loan was increased more than 6 trillion won helped financial authorities make the decision. Compared to last month, this figure was increased by 36.4% in bank side and 33.4% from non-bank side.
Regarding these problems, Tom Burn who is vice president of Moody’s pointed out some problems that could hinder the sustainable development. Those problems were household debt and loan-deposit ratio.
In terms of loan-deposit ratio, he said banks are increasing loan-deposit ratio by borrowing from other countries. Burn Tom also said that “Japan, Singapore and other areas’ loan-deposit ratio is around 60~70% whereas korea’s is about 98%”, warning that excessive ratio could lead to insolvent banks.
Yung Dae Kim, vice president of Financial Supervisory Service, held a meeting and said “Loan-deposit ratio should be lowered not to developed country’s extent but to a certain extent.” At that meeting, there were vice presidents of main banks including Woori, Shinhan, Hana.
Among them, Shinhan made it to lower the loan-deposit ratio by the end of July to 99.3%, other banks are also trying to lower the ratio by the end of this year to below 100%.
Korea’s loan-deposit ratio is now 97% (except for the CD) which was really decreased compared to financial crisis in 2008 but still evaluated too high compared to developed countries’ which is about 80%.
Especially for banks of Shinhan, Hana, Busan, Daegu are exceeding 100% of loan-deposit ratio so it seems that they should lower that ratio first.
FSC said that they would lower the loan-deposit ratio to the large extent if the circumstance is serious. FSS is also preparing for various guidelines following FSC’s policies. At the meeting on last 25th, the fact that loan-deposit ratio should be developed at the level of advanced countries could be interpreted as an indication of government’s willingness to cut down the household debt and have a soundness of bank.
Banks even admit the need of regulation of loan-deposit ratio itself. One executive of bank said “lower that ratio is right in a general way, but if it is way lowered than people’s expectation, there might be serious side-effects.”
Then, what could be the side-effects of lowering loan-deposit ratio?
If financial authority lower the ratio, small and mid-sized companies and ordinary people are hard to get the loan. In fact, banks’ loan of middle period is having been at a standstill.
If the lowering the ratio-decision is made in this situation, small and mid–sized companies having low credit rating are actually impossible for getting a loan.
In perspective of ordinary people, if the ratio is lowered so ordinary people go to the nonmonetary institutions or money lenders, financial authorities could be criticized by the fact that they couldn’t decrease the loan itself but increase the interest rate to ordinary people.
Actually, after the announcements of lowering loan-deposit ratio by financial authority, large sum of deposit which is sensitive to interest rate is increasing and structure of deposit maturity is becoming shorter and shorter focused on MMDA.
Hyo chan Jeon, senior researcher of Samsung Economic Research Institute, expected that “considering side-effects, it’s hard to regulate loan-deposit ratio for a long time”.
Ju Hyun Han (firstname.lastname@example.org)