July Household Loans Increase by 5.3 Trillion Won... Expansion of Growth Rate

"Step 2 Stress DSR Implemented Without Issues"
Household Loans Managed Stably Within Nominal GDP Growth Rate

Last month, the increase in household loans in the financial sector expanded. Financial authorities stated that there is a high risk of the upward trend continuing due to increased real estate transactions and announced that they will maintain their management stance.

The Financial Services Commission and the Financial Supervisory Service announced on the 12th that the total household loan amount in the financial sector increased by 5.3 trillion won in July, which is a larger increase compared to the previous month (4.2 trillion won). However, mortgage loans increased by 5.4 trillion won, showing a reduced increase compared to 6 trillion won in the previous month. The authorities analyzed that this was due to the decrease of 600 billion won in the increase of bank mortgage loans (5.6 trillion won) compared to the previous month (6.2 trillion won). Other loans continued to decline, decreasing by 100 billion won in both banks and secondary financial institutions. The decrease was somewhat smaller compared to 1.8 trillion won in the previous month.

Looking at each sector, the increase in household loans in banks shrank compared to the previous month, while the decrease in household loans in secondary financial institutions narrowed. Last month, bank household loans increased by 5.5 trillion won, a smaller increase compared to 5.9 trillion won in the previous month. This was mainly due to the slowdown in mortgage loan growth, such as group loans increasing by 100 billion won turning into a 2 trillion won decrease.

Household loans in secondary financial institutions decreased by 200 billion won, significantly narrowing the decrease compared to 1.7 trillion won in the previous month. The base effect due to amortization at the end of the half-year was cited as the reason last month. Mutual finance (1.2 trillion won) and insurance (200 billion won) maintained their decreasing trend, while credit card companies (800 billion won) and savings banks (200 billion won) turned to an increase.

Financial authorities noted that since household loans began to increase from April, they have continued to rise mainly in policy loans and bank mortgage loans, and they foresee a high risk of the upward trend expanding in August due to increased real estate transactions centered in the metropolitan area and demand for funds during the vacation season. They added, “Based on close monitoring of the household debt situation, we will manage the household loan growth rate within the nominal GDP growth rate through policy coordination among related ministries and close communication with the financial sector.”

In particular, with the second phase of the stress Debt Service Ratio (DSR) being implemented from the 1st of next month and the calculation of management-purpose DSR starting for all household loans in the banking sector, the financial sector itself is urged to be vigilant about the current household debt situation and manage household debt based on borrowers’ repayment ability. They emphasized establishing a consistent loan practice of borrowing within the repayment capacity and repaying in installments from the beginning.