Household Loans Rise, Driven by Mortgage Lending
May Rate Cut and July DSR Phase 3 Implementation
Emphasis on Autonomous and Rigorous Loan Management
Vice presidents from the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NongHyup) were summoned to the Financial Services Commission for the first time since the launch of the new administration. As household loans, particularly mortgage loans, increased last month, the banks were once again urged to exercise autonomous and rigorous loan management.
According to financial authorities on June 12, the Financial Services Commission convened the vice presidents in charge of retail banking from the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NongHyup) on the morning of the previous day. At the meeting, the Financial Services Commission emphasized that strict loan management must be maintained through appropriate and autonomous credit screening.
In May, household loans across the entire financial sector increased by a total of 6 trillion won, with the rate of increase expanding compared to the previous month (5.3 trillion won). In particular, total mortgage loans rose by 5.6 trillion won, up from 4.8 trillion won in the previous month. In the banking sector, the figure increased from 3.7 trillion won to 4.2 trillion won, while in the secondary financial sector, it rose from 1.1 trillion won to 1.5 trillion won, all showing month-on-month growth.
Whereas until April, credit loans had been driving the total volume of household lending, in May, anticipation of a benchmark interest rate cut and the upcoming implementation of the third phase of the Debt Service Ratio (DSR) stimulated loan demand, leading to a significant increase in household loans, particularly mortgage loans.
The financial industry expects the upward trend in household loans to continue in June. This is both because it is a seasonally active period for household loans and because market conditions may further stimulate loan demand. One of the most influential factors affecting household loans is the benchmark interest rate. The Bank of Korea lowered the benchmark rate by 0.25 percentage points last month, and there are expectations of further cuts.
Financial authorities are reportedly concerned about a repeat of the situation in the third quarter of last year. At that time, former Financial Supervisory Service Governor Lee Bokhyun pointed out the sharp rise in household loans, and banks soon responded by raising their additional interest rates to curb loan demand. As loan rates rose more than 20 times over two months, the Financial Supervisory Service criticized the banks. In response, banks implemented stricter lending regulations. When genuine borrowers experienced confusion, the former governor issued a formal apology.
Moreover, the third phase of the Debt Service Ratio (DSR), which will be implemented starting in July, is also cited as a factor driving loan demand, as it will increase the burden of loan interest rates in the future. Reflecting this, as of June 5, the outstanding balance of overdraft accounts at the five major commercial banks reached 39.326 trillion won, the highest level since December last year (40.021 trillion won).
A Financial Services Commission official explained, "Personal mortgage loans and policy loans led the increase in household loans in May. However, the increase was smaller than feared and remains within a manageable range."
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