Household Loans Fall KRW 2.2 Trillion in September, First Net Decline This Year

Mortgage loan growth narrowed from KRW 4.3 trillion in August to KRW 3.3 trillion
Other loans declined, driven by a contraction in credit loans.

Household loans across the financial sector fell by KRW 2.2 trillion last month from the previous month. Other loans, led by credit loans, declined by KRW 5.5 trillion, while the increase in mortgage loans also narrowed. However, with second-half risk factors still in play, including expectations of rising home prices and the possibility of greater volatility in credit loans, financial authorities plan to manage household debt through measures such as aggregate lending controls.

A branch of a commercial bank in Seoul on the 30th. Photo by Kang Jinhyeong aymsdream@

According to the Financial Services Commission (FSC) on October 15, household loans across the financial sector fell by KRW 2.2 trillion in September from the previous month. This marked the first net decline in nine months, since December last year, when loans fell by KRW 1.2 trillion. Household loans increased by KRW 9.3 trillion in May, KRW 8.3 trillion in June, KRW 6.4 trillion in July, and KRW 2.6 trillion in August, before turning downward in September.

The increase in mortgage loans, which had widened in August, narrowed again last month. Mortgage loans rose by KRW 3.3 trillion in September, with the increase down KRW 1 trillion from the previous month. In particular, the increase in bank loans was KRW 600 billion, down KRW 2.9 trillion from KRW 3.5 trillion the previous month.

Other loans fell by KRW 5.5 trillion, a much larger decline than the KRW 1.5 trillion decrease the previous month. This was because the decline in credit loans surged to KRW 3 trillion from KRW 400 billion the previous month.

By sector, household loans at banks increased by KRW 600 billion, a sharp narrowing from the KRW 3.5 trillion increase the previous month. Within this, the increase in banks' own mortgage loans narrowed from KRW 2.9 trillion the previous month to KRW 1.8 trillion last month. Policy-backed loans increased by KRW 1.1 trillion, maintaining the same increase as the previous month. Other bank loans fell by KRW 2.3 trillion last month, following a KRW 600 billion decline the previous month.

Household loans in the non-bank financial sector fell by KRW 2.8 trillion last month, a larger decline than the KRW 700 billion decrease in August. The decline widened for insurers, from KRW 300 billion in August to KRW 800 billion last month; for specialized credit finance companies, from KRW 300 billion to KRW 900 billion over the same period; and for mutual financial institutions, from KRW 400 billion to KRW 700 billion. Savings banks shifted to a decline, falling by KRW 400 billion last month after increasing by KRW 300 billion the previous month.

At a joint meeting of relevant agencies to review household debt held that day, Shin Jinchang, director general of the FSC, said, "Household loans declined on a net basis for the first time this year in September, as mortgage loan growth slowed and the decline in other loans widened." He attributed the trend to factors affecting the housing market, including lower housing transaction volumes and fewer move-in units, as well as seasonal factors such as sales and write-offs of nonperforming loans at quarter-end and holiday bonuses.

He said concerns about a year-end lending cliff are expected to be limited, as the annual growth target for aggregate lending has been raised from 1.5% to 3.0%, and group loans (loans for relocation expenses, interim payments, and final payments) will be managed separately from each financial institution's aggregate lending target. However, he noted that second-half risk factors remain, including expectations of rising home prices and the possibility of greater volatility in credit loans.

Shin said that starting October 19, measures under the August 13 package will take effect, including removing the marriage penalty in Bogeumjari loans and strengthening support for special jeonse loan guarantees for young people without homes. He also urged each financial institution to do its utmost to update its IT systems, train employees, and inform customers so that they do not encounter difficulties or have to file complaints at branches.

He also called on financial institutions to thoroughly verify and monitor lending so that end users can obtain loans without disruption in line with the financing plans they expected when purchasing their homes, given that the August 13 package excludes 100% of group loans for newly built residential complexes from each financial institution's aggregate lending target.

"If financing difficulties arise at an individual housing development, the financial authorities will quickly assess the situation at that site and work with the financial sector to actively address the difficulties faced by end users," Shin said.

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