Concerns Grow Over Early Loan Shutdown Amid Rising Household Debt

Household loans in South Korea are rapidly increasing. The resurgence of mortgage loans, coupled with rising demand for investment loans driven by stock market optimism, has raised concerns that the annual "loan shutdown" typically seen at the end of the year may occur earlier this year.

As of June 23, the outstanding household loans from the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—totaled 775.3 trillion won, an increase of 4.18 trillion won from the end of the previous month, which stood at 770.82 trillion won. Although the growth rate of household loans has not shown significant increases under the financial authorities' management policies, it has risen by 3.53 trillion won compared to the end of April (767.30 trillion won). If this trend continues, the increase for this month is expected to surpass that of May.

In response to the rising household debt, banks are tightening their lending criteria. Starting June 26, KB Kookmin Bank will limit mortgage insurance (MCG·MCI) subscriptions, thereby reducing mortgage loan limits. NH Nonghyup Bank has already halted MCG·MCI subscriptions since last month. Woori Bank plans to cap personal credit loans at 100 million won and reduce overdraft limits to 50 million won starting June 26. Other major banks are implementing similar measures.

A significant issue is that the overall household loan growth target for this year has been reduced compared to last year. The Financial Services Commission has announced that it will manage the household loan growth rate at around 1.5%, down from last year's 1.7%. Major banks with substantial loan volumes have set even lower growth targets. According to Lee Yang-soo, a member of the National Assembly's Political Affairs Committee, Shinhan, Hana, and NH Nonghyup banks have set their household loan growth targets at 0.70% each. Woori Bank's target is 0.71%, while KB Kookmin Bank has the lowest target among the five at 0.59%. If the current growth trend continues, stricter management of total loans by banks is inevitable in the second half of the year.

As a result, there are predictions that the household loan shutdown, which typically occurs at the end of the year, may be advanced this year. Banks that exceed their annual targets may face disadvantages in setting their household loan management goals for the following year.

A financial industry source stated, "With the recent surge in household loans, there is increasing pressure to manage total lending. If the trend of investment loans continues and demand for funds rises during the fall moving season, banks will have no choice but to tighten lending further."