Bank Household Loan Growth Declines for 3rd Month... Concerns Over 'Balloon Effect'

Bank of Korea October Financial Market Trends

Due to loan regulations and other factors, apartment transactions have slowed down, leading to a continuous accumulation of listings. At a real estate agency in Gangnam, Seoul, flyers for sale and jeonse (long-term lease) listings are posted. Photo by Kang Jin-hyung

As the government and banks continue to manage household loans, the increase in household loans in the banking sector significantly slowed down last month. However, there is concern over the balloon effect, where loans from secondary financial institutions such as Saemaeul Geumgo and regional Nonghyup increase as bank loans become restricted.

According to the "Financial Market Trends in October 2024" released by the Bank of Korea on the 11th, the increase in household loans in the banking sector last month was 3.9 trillion won, significantly down from 5.6 trillion won recorded the previous month. The increase in household loans in the banking sector reached 9.2 trillion won in August but has been declining for three consecutive months.

Among household loans, the increase in mortgage loans sharply decreased from 6.1 trillion won in September to 3.6 trillion won in October. Other loans in October, including credit loans and commercial real estate secured loans, increased by about 300 billion won compared to the previous month.

A Bank of Korea official explained, "The management of household loans in the banking sector continues, and the decrease in housing transactions in the metropolitan area has significantly reduced the increase in mortgage loans."

However, although the efforts of the government and banks to curb the surge in household debt have greatly reduced the increase in household loans, there is concern about the balloon effect as people who are blocked from bank loans turn to secondary financial institutions. A Bank of Korea official stated, "There is still significant uncertainty surrounding household loans, so we are monitoring the situation with caution."

Meanwhile, the increase in corporate loans in the banking sector in October expanded significantly to 8.1 trillion won from 4.3 trillion won the previous month. For large corporations, the increase was centered on working capital, while for small and medium-sized enterprises, it was focused on facility funds.

Bank deposits in October continued to increase, mainly in time deposits. The Bank of Korea explained that the increase in time deposits was due to banks' efforts to attract deposits for regulatory ratio management and the temporary deposit of local government funds.