Household Loans and Delinquency Rates Rise... Financial Authorities Say 'We Can Manage It'

The Cause of Household Loan Increase is Special BoGeumjari Loan
The Delinquency Rate is Not at a Serious Level Either

Recently, household loans in the financial sector have increased and delinquency rates have also risen, but financial authorities stated that the situation is "manageable" and that they will manage potential risk factors. Household loans in the financial sector, which had slowed down during the interest rate hike period, have returned to an increasing trend after 8 months. In April of this year, household loans in the financial sector increased by 200 billion KRW compared to the previous month, marking the first increase since August 2022.

The Financial Supervisory Service (FSS) explained that "the increase in household loans is due to the special BoGeumJaRi loan (47 trillion KRW) focused on actual demand," and "excluding policy mortgages, other bank loans and household loans in the secondary financial sector (-2.2 trillion KRW) continued to decline in April." They added, "Currently, loan interest rates remain high compared to the past surge in loans, and housing transactions are generally lower than in previous years, so the increase is expected to be limited going forward."

The FSS also stated that it is difficult for banks to expand loan supply in the near term. This is due to increased credit risk for borrowers in the primary financial sector and pressure on profitability and soundness in the secondary financial sector. The FSS said, "Although the possibility of a rapid increase in household loans is not high, since the size of household loans in Korea is high at 102.2% of GDP, and the pace of increase could accelerate depending on the future asset market and market interest rate trends, we plan to manage this with vigilance."

The rising delinquency rates are also not considered serious. As of the end of March this year, the bank delinquency rate was 0.33% (up 0.08 percentage points from the end of last year), savings banks 5.07% (up 1.66 percentage points), mutual finance 2.42% (up 0.90 percentage points), card companies 1.53% (up 0.33 percentage points), and capital companies 1.79% (up 0.54 percentage points).

The FSS stated, "This is not a serious situation that threatens the soundness and safety of the financial system," and "the current delinquency rate level is generally similar to the period just before the pandemic or between 2014 and 2016, and is better than during past global financial crises or savings bank incidents."

They continued, "Although the delinquency rate is likely to continue rising for the time being, considering that the financial sector has recently strengthened asset soundness management through the sale and write-off of delinquent loans and enhanced post-loan management, and expanded loss absorption capacity through increased loan loss provisions and capital augmentation, the situation is not serious."

On the 25th, the Financial Supervisory Service held a 'Household Loan Trends and Soundness Review Meeting' with financial industry sectors and private experts to review household loan trends, soundness status, and potential risk factors, and to discuss soundness management measures.