[Financial Microscope] Household Loan Balance at Five Major Banks Declines for First Time in Six Months... Lending Burden to Rise Further

Household Loans at Five Major Banks
Down 3.1 Trillion Won from Previous Month
Mortgage Balances Fall, but Group Loans Rise
Borrower Burden Grows Amid Lending Caps and Interest Rate Hikes

The outstanding balance of household loans at the five major commercial banks is showing a decline for the first time in six months. This trend is attributed to several factors: some loan interest rates have risen following an increase in the Bank of Korea’s base interest rate, and banks are continuing to strengthen their management of household lending. However, since these five banks are required to control the increase in household loans, lending standards are expected to remain strict next month as well.

According to the financial sector on September 30, the outstanding household loans at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at 778.9805 trillion won as of the 23rd of this month, down 3.1387 trillion won from the end of last month (782.1192 trillion won). If this trend continues through the end of the month, the monthly household loan balance will post its first drop in six months since March, when it fell by 136.5 billion won.

The decline has been especially pronounced in unsecured loans. The balance of unsecured loans at the five major banks decreased by 2.6406 trillion won, from 109.5718 trillion won at the end of last month to 106.9312 trillion won as of September 23. Approximately 84% of the total decrease in household loans came from unsecured loans. During the same period, the balance of mortgage loans decreased by 347.1 billion won, from 621.2730 trillion won to 620.9259 trillion won.

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The outstanding balance of bank-originated household loans, excluding policy-based loans, is also on a downward trend. As of the latest compilation on September 22, the five major banks’ household loans excluding policy-based loans amounted to 651.2104 trillion won, which is up by 6.2404 trillion won compared to the end of last year (644.9700 trillion won), but down by 1.0513 trillion won from the previous count on September 17 (652.2617 trillion won). As a result, there is now a buffer of 869.6 billion won before reaching the newly established annual household loan target of 7.1100 trillion won set last month.

However, due to strengthened management by banks to prevent a ‘lending cliff’ at year-end, the burden is expected to remain high for borrowers seeking new mortgage loans next month. While the overall mortgage loan balance is declining, the balance of group loans continues to rise. The outstanding balance of group loans increased by 569.7 billion won, from 149.2970 trillion won at the end of last month to 149.8667 trillion won as of the 23rd of this month. If the timeline for loan execution extends into December, lending limits set for next month could lead to a concentration of loan demand during a specific period, raising the possibility of renewed competition among bank branches and recruitment channels.

Conditions for credit line loans (overdraft accounts) are also becoming more challenging. According to the Korea Federation of Banks, as of new accounts in July this year, the average annual interest rate for overdraft accounts was 5.01%, up 0.25 percentage points from 4.76% in January. Even among top-tier borrowers with credit scores between 951 and 1000, the average interest rate rose from 4.68% per annum in January to 4.95% in July, an increase of 0.27 percentage points.

Banks have lowered their spread rates, but the benchmark rate for financial bonds—which directly impacts overdraft accounts—has risen by a larger margin, causing overall overdraft account interest rates to increase. According to the Korea Federation of Banks’ consumer portal and the Korea Financial Investment Association’s bond information center, the average spread rate for overdraft accounts at the five major banks dropped from 3.51% in January to 3.29% in July, a decrease of 0.22 percentage points. In contrast, the six-month AAA-rated financial bond yield rose by 0.466 percentage points, from 2.793% at the end of January to 3.259% at the end of July.

As of September 28, the six-month bank bond yield stood at 3.805%, an increase of 0.546 percentage points compared to the end of July. Considering this, overdraft account rates are likely to increase further over time. Moreover, the average credit score for new credit line loan applicants at the five major banks continued to exceed 960 this summer, standing at 962.6 in June and 961.2 in July. This means that not only mid- and low-credit borrowers but also high-credit borrowers in the 900–950 range are finding it difficult to apply for loans.

An industry official said, “Banks are making efforts to reduce their spread rates in order to ease borrowers' burdens and promote inclusive finance, but it is becoming increasingly difficult to contain lending rates as benchmark rates continue to surge. In addition, banks’ management of total household loan volumes to prevent another year-end loan shutdown could persist through the end of the year.”

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