As banks that aggressively increased lending at the beginning of the year suddenly tighten loan standards in the second half, confusion among borrowers is growing. This 'backward total management' is repeating itself this year as annual household loan targets are being exhausted earlier than expected, leading to a halt in new applications and reduced limits.
As of July 9, the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reported a total household loan balance (excluding policy loans) of 648.36 trillion won, an increase of 3.39 trillion won from the end of last year (644.97 trillion won). This represents 78% of the annual household loan increase target of approximately 4.34 trillion won.
Considering the outstanding loan applications yet to be executed, there is a possibility that the loan target will be fully met in July. Already, three of the five major banks have exceeded their targets, and the remaining two are expected to surpass their limits soon, leading to predictions that new applications will be halted after August.
This trend has been a recurring issue in recent years. Last year, the household loan increase target for the second half was cut to half of the initial amount set at the beginning of the year due to the June 27 measures, resulting in a sharp increase in loan thresholds after July. In 2024, loan sales were also restricted in conjunction with the implementation of the second phase of the debt service ratio (DSR) stress test in September.
The problem is that the burden of such loan management falls squarely on the shoulders of actual borrowers. Those who have already signed housing sale contracts and confirmed payment schedules are now forced to revise their funding plans due to sudden loan regulations. There are numerous cases where loans that were possible at the time of contract become blocked or limited by the time of payment. Changes in policies from financial authorities and banks are reducing predictability, increasing uncertainty in the market.
However, there is a general consensus that total management of household debt is unavoidable given the current increase in household debt. If loan supply is excessively expanded, it is difficult to rule out the possibility of household debt rising rapidly again and overheating the housing market. Ultimately, the core of the debate lies not in the necessity of total regulation but in its operational methods.
Market participants believe that financial authorities need to enhance predictability in their regulations. There is a need for more sophisticated total management regulations that protect actual borrowers while curbing speculative demand.
Some argue for allocating part of the total amount at the time of credit approval rather than at the time of loan execution, or for operating a joint management volume across banks instead of individual bank management. Allocating part of the total amount to first-time homebuyers and existing contract holders for balance loans could also prevent unexpected harm to actual borrowers.
A financial industry official stated, "Banks are also in a position where they must meet total management targets, so they have no choice but to sharply reduce loan supply as they approach their limits. Fundamentally, there is a need to design the total management approach more flexibly."
* This article has been translated by AI.
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