Last Year's Household Loan Growth: 40% Driven by Jeonse Loans

A loan information notice posted on the exterior wall of a bank in downtown Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Song Seung-seop] It has been identified that 40% of the increase in household loans in the banking sector last year came from Jeonse loans.

According to financial authorities on the 17th, the total household loan amount in the banking sector increased by 71.6 trillion won last year. Among these, the increase in Jeonse deposit loans was 29.5 trillion won. Although the growth in Jeonse deposit loans decreased by 4.2 trillion won compared to the previous year when it soared to 33.7 trillion won, its overall proportion expanded from 33.5% to 41.2%.

The reason for the expanded proportion lies in the household debt management measures introduced by the government and financial authorities. Banks had to significantly reduce household loans due to regulations last year, but Jeonse loans were excluded from total volume management, resulting in a relatively smaller decline.

Looking at the monthly increase in Jeonse loans, it decreased from 3.7 trillion won in 2020 to 1.7 trillion won in November last year. The monthly increase in Jeonse loans had been on an upward trend, rising from the 1 trillion won level in mid-2017 to 2 trillion won in 2018.

This year as well, the increase in Jeonse loans is expected to be a key factor in household debt management. While regulations such as the strengthening of the Debt Service Ratio (DSR) on a borrower basis (individual basis) have become stricter, Jeonse loans have once again been excluded from these regulations.

Additionally, the Korea Housing Finance Corporation raised the Jeonse deposit guarantee limits from 500 million won to 700 million won in the metropolitan area, and from 300 to 400 million won to 500 million won in non-metropolitan areas. As the number of homes eligible for guarantees increases, the scale of Jeonse deposit loans is also likely to grow.

Meanwhile, the Financial Services Commission has announced plans to improve the excessive reliance of Jeonse loans on public guarantees. It has also reported in its work plan that it will consider reducing public guarantees or sharing risks with financial institutions providing loans.