South Korea’s Stricter Lending Regulations Slow Household Loan Growth

Household loan growth within South Korea’s banking sector is experiencing a pronounced slowdown, driven by the government’s more stringent lending regulations. A key aspect of this shift is the first potential monthly decline in mortgage loans in over 18 months, signaling a significant change in the landscape of household borrowing.

Banking Sector Sees Sluggish Loan Growth

As of September 11, household loans across South Korea’s five leading banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—reached a combined balance of 763.07 trillion won ($571 billion). While this represents an increase of 1.72 trillion won ($1.3 billion) compared to the end of August, the pace of loan growth has decelerated sharply.

In September, the average daily growth of household lending plummeted to just 156 billion won ($117 million), a dramatic reduction from August’s average of 1.27 trillion won ($950 million) per day. This steep decline highlights the impact of the government’s robust regulatory measures aimed at stabilizing the housing market and curbing household debt accumulation.

Mortgage Lending Faces First Decline Since Early 2022

Mortgage loans, which constitute the majority of household debt, are undergoing a notable downturn. In September, the balance of mortgage loans fell by 524 billion won ($392 million) to a total of 607.62 trillion won ($455 billion). If this trend holds through the end of the month, it will mark the first monthly decline in mortgage lending since March 2022—when loans decreased significantly by 4.49 trillion won ($3.4 billion).

While personal unsecured loans recorded a modest rise of 1.82 trillion won ($1.36 billion) during the same period, this increase was insufficient to offset the broader contraction in household loan growth.

Regulatory Measures Reshape Borrowing Dynamics

The reduced loan growth reflects the banking sector’s adjustment to tighter government controls. According to a banking industry insider, “Most loans associated with contracts finalized before the regulatory measures on June 27 have now been processed. New loan demand is subdued due to continued tightening of regulations.”

Total household loan growth is expected to reach its lowest point since January 2023, a month that saw a contraction of 4.76 trillion won ($3.56 billion). This downturn is closely linked to the introduction of caps on mortgage and home equity loans in metropolitan areas. Under the new rules, the maximum mortgage loan is limited to 600 million won ($449,000), while home equity loans for single homeowners are capped at 200 million won ($150,000).

Mixed Reactions to Loan Policy Impact

The ripple effects of the stricter lending rules are being felt across the housing and financial sectors. Analysts note that these policies are impacting genuine buyers in addition to speculative investors. While critics argue that the measures could unnecessarily restrict legitimate homebuyers, South Korean authorities defend the changes, emphasizing their importance in stabilizing housing prices and mitigating household debt risks.

According to the government, these regulatory steps are essential for promoting a healthy balance in the nation’s economy. Despite ongoing debates on their potential to suppress housing demand, policymakers remain committed to maintaining these restrictions as part of a long-term strategy for financial stability.

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