Signs of Decline in Household Loans? A Drop of 158.9 Billion KRW in a Single Day

The total household loan balance of the five major banks in South Korea has decreased by more than 150 billion KRW in a single day,

The total household loan balance of the five major banks in South Korea has decreased by more than 150 billion KRW in a single day, indicating a potential decline in household loans. After a surge in demand for loans at the end of August, the recent implementation of the second stage of the Stress Debt Service Ratio (DSR) regulation appears to be having a significant impact. This blog post examines the current status and future outlook of household loans, along with the responses from the government and the financial sector.

As of September 6th, the household loan balance of the five major banks in South Korea (KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup Bank) was recorded at 704.6 trillion KRW, reflecting a decrease of 158.9 billion KRW in just one day. While there was an increase in loan demand at the end of August due to a rush of "all-in" borrowing, the number of customers seeking loans has been declining since the early days of this month due to the implementation of the second stage of the Stress DSR. Consequently, the downward trend in household loans is expected to become more pronounced in mid-September.

NH NongHyup Bank has played a leading role in reducing the household loan balance. Since September 2nd, the bank has shown a continuous decline, significantly contributing to lowering the overall balance of the five major banks. A representative from one of the commercial banks stated, "The number of customers applying for loans has decreased since the beginning of the month, and the bank counters are much quieter," adding, "The slight increase in the household loan balance is due to loans applied for in August. The effects of the second stage of the Stress DSR are expected to become more evident from mid-month."

Previously, household loans from the five major banks had continued to rise, particularly with mortgage loans increasing for six consecutive months and unsecured loans steadily growing. Unsecured loans have increased by 100 billion KRW even in September. However, there is now a higher possibility that the balance of household loans, including mortgages, may start to decline.

A meeting between the Governor of the Financial Supervisory Service (FSS), Lee Bok-hyun, and the heads of major banks is scheduled for the 10th of September. Following this meeting, it is expected that the government will introduce additional measures to curb household loans in line with its guidelines. The banking sector anticipates that household loans will be more controlled after the Chuseok holiday. Governor Lee Bok-hyun had previously stated, "We will discuss household loan management measures through a meeting with bank heads as soon as possible before Chuseok."

Governor Lee has criticized the recent increase in loan interest rates by banks, and the subsequent regulatory measures have led to some confusion, as concerns were raised about potential damage to actual borrowers. In response, Financial Services Commission (FSC) Chairman Kim Byung-hwan clarified that there is no change in the government's stance on strengthening household debt management.

Meanwhile, the Bank of Korea is scheduled to release its Monetary and Credit Policy Report on September 12th. Through this quarterly report, the Bank of Korea will provide a comprehensive assessment of recent inflation, household debt, and the real estate market to the National Assembly and the media. It remains to be seen whether any clues regarding the future direction of monetary policy will be revealed.

While there are signs of a decline in household loans, there is growing interest in how this trend will continue, depending on policy changes and responses from the financial sector. The outcome of the upcoming discussions between financial authorities and the banking sector, along with the Bank of Korea's policy direction, is expected to have a significant impact on the household loan market. It will be important to keep an eye on how policies evolve and how the market responds in the coming months.