"Warning on Household Loan Increase" Secondary Financial Institutions to Receive 'Management Plans' Like Banks

Secretary General Kwon Daeyoung Presides Over 'Household Debt Review Meeting'
Mutual Finance Sees Surge in Mortgage Loans Due to 'Balloon Effect'
Insurance, Card, and Savings Banks Also Experience Increase in Card Loans and Credit Loans

Financial authorities convened the secondary financial sector to share notable trends in household loan growth across different industries, including mortgage loans, insurance policy loans, card loans, and credit loans. They also instructed the secondary financial sector to prepare household debt management plans within the year and plan to receive management plans from them starting next year, similar to the banking sector. Banks, which have seen a reduction in the growth rate of household loans, were also urged to manage household debt more thoroughly during November and December of this year.

On the 11th, the Financial Services Commission announced that it held a 'Household Debt Review Meeting' chaired by Secretary-General Kwon Daeyoung. The meeting was organized to share the household debt trends of all financial sectors for October and to discuss future response measures. Attendees included related ministries such as the Ministry of the Interior and Safety, the Bank of Korea, the Financial Supervisory Service, associations from all financial sectors, the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), iM Bank (formerly Daegu Bank), Gyeongnam Bank, and Toss Bank.

Household loans in the secondary financial sector have turned to an increasing trend again, with a significant rise in volume. The mutual finance sector absorbed loan demand that shifted away due to strengthened autonomous management in the banking sector, leading to a sharp increase centered on mortgage loans. The insurance sector saw an increase similar to the previous month, mainly in insurance policy loans for emergency living expenses, while the credit card and savings bank sectors showed growth primarily in card loans and credit loans, respectively.

The total household loan increase across all financial sectors last month was 6.6 trillion KRW, about 1.3 trillion KRW more than in September (5.3 trillion KRW). During the same period, household loans in the secondary financial sector increased by 2.7 trillion KRW, a significant rise compared to the previous month (-300 billion KRW).

Participants expressed concern over the overall upward shift in household loans across sectors. They also agreed that since the increase patterns differ by industry, it is crucial for each sector to implement appropriate additional measures independently. In particular, the mutual finance sector, which showed an increase centered on mortgage loans, will have each central association develop its own risk management enhancement plans and urge individual cooperatives and credit unions to join the management efforts.

Financial authorities plan to have the secondary financial sector prepare household debt management plans for the remainder of this year. Starting next year, they will manage the secondary financial sector based on submitted management plans, similar to the banking sector. The Financial Supervisory Service plans to inspect the overall handling of household loans, focusing on sectors and financial companies with notable household debt growth, to ensure proper implementation of the second-stage stress total debt service ratio (DSR) and compliance with credit screening guidelines.

Secretary-General Kwon stated, "Recently, loans related to urgent cash needs of low-income and vulnerable groups, such as insurance policy loans and card loans, have been increasing, so it is necessary to examine these funding demands more closely." He added, "While firmly and strictly managing household loans, it is important to approach this with balance to prevent excessive financial difficulties for low-income and vulnerable groups during the process."

In the banking sector, autonomous management of household loans has continued, leading to a reduction in the growth rate of household loans, especially mortgage loans. Participants unanimously agreed that banks need to manage household debt more thoroughly during the remaining period to maintain the downward stabilization of household debt ratios.

Secretary-General Kwon said, "For the stability of the real estate market and the macroeconomy, it is necessary to maintain an autonomous management stance not only for the remainder of this year but also for the foreseeable future." He added, "Currently, a considerable stabilization trend is confirmed even on a weekly basis in the banking sector. However, banks that have exceeded their management targets for household loans set at the beginning of the year must ensure strict adherence to these targets through thorough management."