[2026 Economic and Financial Outlook Focus] ④ Tightening Household Loans, Expanding Corporate Lending to Revitalize the Economy

Financial authorities expected to maintain focus on household loan management this year
Raising risk-weighted assets (RWA) for mortgages to reduce household loan supply
Concentrating on productive finance by channeling funds to businesses to revive

Editor's NoteThe Year of the Fire Horse has dawned. This year, the Korean economy is set to shift its focus to improving the growth rate after last year's ultra-low growth, which was the aftermath of the emergency martial law situation. However, compared to the past, when a period of darkness in growth was followed by a much brighter recovery, this year's rebound is expected to be modest. Key variables to watch include changes in global supply chains due to the spread of protectionism, the sustainability of the artificial intelligence (AI) boom that is driving Korea's semiconductor exports, as well as high exchange rates and real estate issues. The banking sector is expected to face a challenging year, as policies to curb household lending put downward pressure on profits, while competition for corporate loans intensifies. The insurance sector is also likely to see its profitability and soundness threatened by weak core business performance and stricter regulations. In these tough conditions, the key policy and supervisory priorities for financial authorities are household loan regulation, productive finance, and financial consumer protection. The plan is to continue the total volume regulation on household loans, while focusing on regulatory easing and incentives to promote productive finance. Over the course of four articles, we will examine the major challenges that Korea's economy, financial industry, and policy must overcome this year under the spirit of the 'Red Horse'.

This year's financial policy and supervisory keywords can be summarized as "household loan regulation," "productive finance," and "financial consumer protection." The Financial Services Commission plans to continue the total volume regulation on household loans this year, as it did last year, and focus on regulatory easing and incentives to promote productive finance. The Financial Supervisory Service will support these efforts, while concentrating all its resources on protecting financial consumers. Under this policy direction, supervision related to financial consumer protection will be further strengthened throughout the entire process, from product design to sales and decision-making.

Continued Focus on Household Loan Management... Higher RWA Floor for Mortgage Loans

According to the financial sector on January 8, the government's household loan regulation policy this year is expected to be similar to or even stronger than last year. Financial authorities are maintaining their stance of restricting excessive mortgage lending by banks and guiding lending toward productive areas such as corporate loans. Lee Okwon, Chairman of the Financial Services Commission, recently stated, "Comprehensive management of household debt is unavoidable," adding, "We will continue with consistent policies this year as well."

As of this month, the Financial Services Commission has raised the minimum risk-weighted asset (RWA) ratio for banks' mortgage loans from 15% to 20%. Raising the RWA floor reduces banks' capacity to issue mortgage loans, effectively decreasing the supply of household loans. As a result, the scale of new mortgage loans supplied by banks this year is estimated to decrease by about 25 trillion to 30 trillion won compared to last year. Commercial banks are also expected to set their household loan growth targets at around 2% this year, in line with government policy.

Depending on trends in the real estate market and household lending, there is also interest in whether the RWA floor for mortgage loans will be raised further. This is because, immediately after the new administration took office, the National Policy Planning Committee considered raising the RWA floor for mortgage loans to 25%. If housing prices surge again and the real estate market deteriorates this year, the government may consider further increases. There is also speculation about whether the policy loan exemption from the debt service ratio (DSR) regulation will be maintained. Currently, policy loans are exempt from DSR regulation, but depending on market conditions, policy loans may also be included in the DSR target.

A financial authority official explained, "We will continue to manage the household loan growth rate at the level of nominal economic growth this year," adding, "Given the inevitable low-growth environment, it will be difficult for the household loan limit in the financial sector to increase compared to last year."

Full-Scale Launch of Productive Finance, All-Out Effort to Revitalize the Economy

This year also marks the first full-scale implementation of productive finance, a core economic policy of the Lee Jaemyung administration. The government has established a National Growth Fund worth 150 trillion won for productive finance, with plans to invest 30 trillion won of this amount this year. The 30 trillion won will be heavily invested in advanced strategic industries such as semiconductors, artificial intelligence (AI), robotics, automobiles, and secondary batteries. A 600 billion won citizen participation National Growth Fund will also be created, and a Business Development Company (BDC)-a listed public fund that primarily invests in ventures and innovative companies-will be launched.

Lee Okwon, Chairman of the Financial Services Commission, is delivering a New Year's address at the '2026 Pan-Financial New Year's Meeting' held at Lotte Hotel in Jung-gu, Seoul on the afternoon of the 5th. 2026.1.5 Photo by Kang Jinhyung

In his New Year's address, Chairman Lee stated, "This year, we will deliver tangible results in productive finance that opens the future," and added, "Through the National Growth Fund, which brings together the government, finance, and industry, we will boldly invest in advanced industries that will shape the future of the Korean economy."

The policy of easing capital regulations for productive finance will also continue. The financial sector is currently requesting a relaxation of the RWA requirements for corporate loans. If the RWA is eased, banks will be able to significantly increase lending to companies. A financial authority official explained, "There are limits to directly easing capital regulations for corporate loans," but added, "We are reviewing additional measures to relax capital requirements."

There are also expectations for the relaxation of capital regulations related to fines. Currently, banks are facing significant difficulties due to fines. This is because, last month, the Financial Supervisory Service sent a prior notice to the five major commercial banks regarding the imposition of fines totaling 2 trillion won in connection with the sale of Hong Kong equity-linked securities (ELS). The Fair Trade Commission has also announced plans to impose large fines on banks for collusion regarding loan-to-value (LTV) ratios for mortgages. Banks are concerned that if fines are imposed, their operational risk RWA will increase significantly, which could disrupt productive finance and shareholder return policies.

The Financial Services Commission and the Financial Supervisory Service are considering deferring the reflection of fines in RWA calculations until the fines are finalized, to ensure that banks' productive finance activities are not hindered. At a press briefing last month, Lee Chanjin, Governor of the Financial Supervisory Service, stated, "We are discussing ways to defer the recognition of fines in banks' RWA until the fines are finalized," and added, "Efforts will continue to prevent obstacles from arising in policy areas such as venture capital supply and productive finance."

Supervisory System Overhauled with Focus on 'Financial Consumer Protection'

This year, the Financial Supervisory Service's key supervisory policy is "financial consumer protection." To ensure that this is not just a slogan but results in effective consumer protection, the agency has carried out a major reorganization of both its structure and overall supervisory system.

In his New Year's address, Governor Lee emphasized, "This year, we will establish and actively implement a supervisory system that puts financial consumers first." He continued, "The Financial Supervisory Service will make financial consumer protection the starting point of all supervisory activities and embed the principle of consumer-centricity throughout all work."

Lee Chanjin, Governor of the Financial Supervisory Service, is delivering a New Year's address at the "2026 Pan-Financial New Year's Gathering" held at Lotte Hotel in Jung-gu, Seoul on the afternoon of the 5th. 2026.1.5 Photo by Kang Jinhyung

To this end, at the end of last year, the Financial Supervisory Service carried out a major organizational restructuring, including the establishment of a new "Consumer Protection Headquarters" directly under the Governor. The Consumer Protection Headquarters was created by separating the consumer protection function from the existing Financial Consumer Protection Bureau and granting it overall responsibility for supervisory services. By expanding the organization and elevating it to report directly to the Governor, the Financial Supervisory Service now has the ability to use all its resources for proactive consumer protection.

A Financial Supervisory Service official stated, "We have shifted our focus from post-factum consumer protection work, which centered on remedies for a small number of victims, to strengthening preventive consumer protection functions for the broader public."

The agency also plans to introduce special judicial police (SJP) to eradicate financial crimes affecting people's livelihoods, such as voice phishing. The SJP system grants limited investigative authority to public officials in relevant administrative agencies to improve the efficiency of investigations into specialized crimes. Currently, the Financial Supervisory Service's SJP work is limited to investigating unfair trading in the capital markets, but there are plans to expand its scope to include financial crimes affecting people's livelihoods, such as voice phishing.