South Korean commercial banks are increasingly using 100% guarantee products that transfer all defaulted loan principal to public guarantee institutions, prompting criticism that banks may be weakening their own credit assessment and risk-management capabilities. Hana Bank announced on August 23 that it had signed an agreement with KODIT (Korea Credit Guarantee Fund) and KIBO (Korea Technology Finance Corporation) to provide 200 billion won ($144.5 million) in loans for sole proprietors aged 39 or younger and companies led by young entrepreneurs, with a 100% guarantee ratio. KODIT and KIBO generally provide partial guarantees of 85% to 90%, leaving banks exposed to some losses, but full guarantees have been repeatedly used for policy programs. Related programs this year include about 1.4 trillion won ($1.0 billion) in productive-finance guarantees for KB Kookmin, Shinhan, Hana and Woori Bank, 610 billion won ($440.8 million) for regional balanced growth with IBK Industrial Bank of Korea, 300 billion won ($216.8 million) for Hyundai Motor auto-parts suppliers, and 150 billion won ($108.4 million) for AI, bio and content companies in the Incheon region. The combined volume of KODIT general guarantees and KIBO technology guarantees rose from 89.7 trillion won in 2023 to 91 trillion won in 2024 and 92.3 trillion won last year, while subrogation payments climbed from 2.8263 trillion won to 3.5531 trillion won and 4.0039 trillion won over the same periods, a 41.7% two-year increase and the highest level in a decade. Regional credit guarantee foundations' subrogation rate rose from 1.01% in 2021 to 5.66% last year, leading the government in June to prohibit full guarantees in principle except when policy considerations require them. Meanwhile, guaranteed loans represented 7.7663 trillion won, or 18.2%, of 42.6578 trillion won in SME loans extended by the five major banks under the productive-finance banner from June last year through the end of June this year. Kim Seok-ki, senior research fellow at the Korea Institute of Finance, said the system gives banks little incentive to assess business viability directly. Household credit reached a record 2,019.8 trillion won at the end of the second quarter, up 25.9 trillion won from the previous quarter and exceeding 2,000 trillion won for the first time. Domestic banks' interest income reached a record 32.2 trillion won in the first half, up 8.3% year over year, even as net income fell 6.4% to 13.8 trillion won because non-interest income dropped 43.4% to 2.9 trillion won. Average first-half pay rose 12.6% at the four major commercial banks to 71.5 million won per employee, while average pay at five major financial holding companies exceeded 100 million won for the first time. Further rate increases and expanded household-loan limits could increase borrower burdens and sustain simultaneous growth in household debt and bank interest income, leaving authorities to balance credit access against financial stability.