South Korea’s Top 5 Banks Seen Cutting Household Loans by About 4 Billion Won in February

Household loan balances at South Korea’s major banks are expected to fall for a third straight month, as tough government lending rules and rising interest rates squeeze liquidity. The shift is cooling real estate-related borrowing and reshaping money flows across asset markets. Still, concerns persist that funds blocked from property loans could move into stocks, reviving debt-funded investing.

As of Feb. 26, household loan balances at the five largest banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — totaled 765.4257 trillion won, according to the financial sector on Sunday. That was down 387.4 billion won from the end of January (765.8131 trillion won). With one business day left and month-end swings typically large, the February decline is expected to be about 400 billion won.
 
The five banks’ household loan balances had appeared to rebound in November, rising 1.5125 trillion won, but turned lower in December, falling 456.3 billion won. The drop widened in January to 1.8650 trillion won. If balances fall again in February, it would mark the first three-month decline since last year.

The market increasingly views the government’s strict household debt stance — including last year’s June 27 and Sept. 7 measures — as taking full effect. Banks have also kept lending standards tight in line with regulators. Some analysts cautioned it remains unclear whether the decline reflects structural deleveraging or mainly supply constraints from regulation.

Higher borrowing costs are also dampening demand. Deposit banks’ mortgage rates stood at 4.29% in January, the highest level in 1 year and 2 months since November 2024 (4.30%). With interest burdens rising, borrowers are delaying new loans.

Real estate-related lending continues to weaken. Mortgage loans fell 1.4836 trillion won in January, switching to a month-on-month decline for the first time in 1 year and 10 months since March 2024. In February, they are expected to slip about 50 billion won from the end of January. Jeonse loans, which have declined for six straight months, are also expected to fall by more than 200 billion won in February.

Unsecured credit loans, which saw more repayments due to early-year bonuses and Lunar New Year payments, also moved into decline in February. Through Feb. 26, credit loan balances at the five banks were down 250.1 billion won from the end of January.
 
Asset-market volatility remains a key variable. With the Kospi extending its rally and topping 6,300 for the first time, some observers say investment demand using credit loans could pick up again. Optimism has spread in parts of the securities industry, with some projecting a Kospi target as high as 8,000.

A banking industry official said fear of missing out is building as the market heats up. “For now, loans are being restrained by rate burdens and regulation, but if stock-market overheating continues, we cannot rule out an increase in credit loans,” the official said.