"Unprecedented 'Loan Freeze' Looms in Second Half... As Additional Regulations and 8% Rates Near, 'Last-Minute Loan' Demand Surges"

Household Lending Driven by Credit Loan Balances
Overdraft Balances Surge Amid “Debt-Financed Stock Investment” Demand
Rising Likelihood of U.S. and Korean Base Rate Hikes This Year

As financial authorities continue to tighten total household loan management, raising the bar for both mortgage loans and now unsecured credit loans, it is becoming increasingly difficult to obtain loans. With additional lending regulations expected next month and a possible interest rate hike by both the US Federal Reserve and the Bank of Korea within the year, concerns are growing that the so-called 'loan freeze' will intensify in the second half of the year. As a result, demand for last-minute borrowing, often referred to as "catching the last train" for loans, is surging as people rush to secure funds in advance.

According to the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) on June 29, the outstanding balance of household loans stood at 774.4964 trillion won as of June 25, up by 3.6735 trillion won compared to the end of the previous month (770.8229 trillion won).

The increase in household loans was mainly driven by a rise in unsecured credit loans. While the balance of credit loans decreased by 318.2 billion won to 104.3413 trillion won at the end of April from 104.6595 trillion won in March, it then surged by 2.1741 trillion won to 106.5154 trillion won at the end of the previous month. As of June 25, the balance had further climbed to 108.7272 trillion won, representing an increase of 2.2118 trillion won in less than a month.

In particular, the balance of revolving credit lines (overdraft accounts) increased by more than 1 trillion won for two consecutive months. The balance stood at 39.5904 trillion won at the end of April, increased by 1.8578 trillion won to 41.4482 trillion won at the end of the previous month, and reached 43.3364 trillion won as of June 25, up 1.8882 trillion won from the previous month.

This trend is attributed in part to the influence of "debt-fueled investment" (known as "Bittou" in Korea), as the domestic stock market has experienced sharp fluctuations. The KOSPI index rose by 30.6% at the end of April and 28.4% at the end of May compared to the previous months. This month, volatility has been extreme, with single-day swings of a 10% drop or an 8% surge.

With financial authorities tightening regulations, the movement to secure funds in advance has become even more pronounced. Earlier, on June 11, the Financial Services Commission convened financial institutions for a countermeasure meeting and ordered them to strengthen loan management.

In response, banks have begun curbing speculative borrowing by lowering credit loan limits and reducing overdraft limits. Woori Bank, KB Kookmin Bank, and Hana Bank have capped unsecured credit loan limits at 100 million won, while Woori Bank and KB Kookmin Bank have reduced overdraft limits to 50 million won. Shinhan Bank is reducing overdraft limits for accounts with low utilization rates, and Nonghyup Bank has decreased the preferential rates for credit loan products by about 0.1 percentage points.

The market expects that the lending sector will shrink significantly in the second half of the year. The government plans to announce additional lending regulations alongside its tax reform plan at the end of July. While the core focus is on real estate tax reform, it is highly likely that the measures will include loan restrictions for non-resident single-home owners. Proposals include prohibiting jeonse (rental deposit) loans, restricting loan maturity extensions, and reducing guarantee ratios for non-resident single-home owners in regulated areas.

Interest rate burdens are also expected to rise. With the US Federal Reserve projected to raise rates nearly twice this year and the Bank of Korea signaling a rate hike, market rates are already on an upward trend. As of June 26, the yield on five-year AAA-rated unsecured bank bonds, which serves as a benchmark for domestic loan rates, stood at 4.269% per annum, up 0.087 percentage points from a month earlier (4.182%). Currently, the upper end of mortgage loan rates at the five major banks is 7.41% per annum, while the ceiling for credit loan rates is 6.16% per annum. If benchmark rates rise, mortgage rates could climb above 8%, and credit loan rates above 7%.

With the strengthening of total loan management by financial authorities, additional regulatory measures, and rising interest rates, the second half of the year could see an "unprecedented freeze" in the loan market. There is growing concern that even borrowers with sufficient repayment capacity may find it increasingly difficult to secure funds.

An official at a major commercial bank said, "We are scaling back lending in line with the financial authorities' directive to tighten loan management," adding, "While we are expanding loans to mid- and low-credit borrowers in accordance with inclusive finance policies, it is becoming increasingly difficult for creditworthy borrowers to obtain loans."

This content was produced with the assistance of AI translation services.