Tightening Household Loans... Bank Household Loan Growth Slows for 3 Consecutive Months

Government Efforts to Curb Household Loans and Impact of Sluggish Housing Transactions

A view of the sales department of a commercial bank in Euljiro, Jung-gu, Seoul. Photo by Yongjun Cho jun21@

As the government's household loan management policy continues, the growth rate of household loans in the banking sector has slowed for three consecutive months. With the housing market showing signs of slowdown and banks' strong commitment to loan management, the deceleration in household loan growth is expected to persist for the time being.

According to the Bank of Korea's "Financial Market Trends in November" report released on the 11th, the increase in household loans by banks last month was 1.9 trillion won on a balance basis compared to the previous month, a sharp decrease from the 3.8 trillion won recorded in October. The growth in bank household loans peaked at 9.2 trillion won in August, then slowed to 5.6 trillion won in September and 3.8 trillion won in October, showing a clear deceleration trend.

The increase in mortgage loans among bank household loans decreased from 3.6 trillion won in October to 1.5 trillion won in November. Park Min-cheol, Deputy Head of the Market General Team at the Bank of Korea's Financial Market Department, explained, "The slowdown in housing transactions in the Seoul metropolitan area, the effects of the government's macroprudential policies, and banks' efforts to manage household loans have significantly reduced the growth in bank household loans." He added, "Looking at the entire financial sector including non-bank institutions, loan growth has been slowing since the peak in August, and this trend is expected to continue for the time being."

Last month, the increase in corporate loans by banks also sharply declined to 2.2 trillion won from 8.1 trillion won in October. Due to the reduction in loan operations by major banks, loans to small and medium-sized enterprises decreased significantly, and loans to large corporations also fell substantially as funding demand shrank. Corporate bonds saw a slight net issuance following the previous month, driven by increased investment demand and lower issuance rates due to the base interest rate cuts.

In November, bank deposits increased by 18.9 trillion won, mainly in time deposits. Time deposits grew primarily in corporate funds due to major banks' efforts to attract funds in response to large-scale maturities, and demand deposit accounts turned to an increase due to temporary deposits of local government funds.