Seoul: Household loans extended by South Korean banks saw a significant increase in May, as reflected in the data released by the central bank on Wednesday. This rise is attributed to an upswing in housing transactions across the country.
According to Yonhap News Agency, the Bank of Korea (BOK) reported that banks' outstanding household loans reached 1,155.3 trillion won (US$845.07 billion) at the end of May. This figure marks a substantial rise of 5.2 trillion won from the previous month, representing the largest monthly increase since September 2024, when household loans grew by 5.6 trillion won. This uptick is part of a trend, marking the fourth consecutive month of increases.
Home-backed loans experienced a rise of 4.2 trillion won from April, totaling 918.0 trillion won by the end of May. This increase was more pronounced than the 3.7 trillion-won growth recorded in April. Additionally, unsecured and other types of household loans increased by 1 trillion won, reaching 236.3 trillion won.
BOK official Park Min-cheol noted in a press briefing that the effect of increased home transactions on loan growth has become evident. He added that as South Korea enters a monetary easing cycle, the central bank is monitoring the situation closely to prevent the increased liquidity from driving up housing prices or further escalating household debt.
The rise in home transactions, which followed the relaxation of regulations on household lending by banks earlier in the year and adjustments to the Seoul city government's land transaction permission rules, was notable. Nationwide apartment transactions increased from 26,000 in January to 50,000 in March, before slightly declining to 41,000 in April. In Seoul, apartment contracts rose from 3,300 in January to 9,500 in March, followed by a decrease to 5,000 in April.
In response to the rising real estate prices, the Seoul municipal government reinstated its land permission regulation in March, requiring prior approval from local authorities for apartment transactions in certain wealthy districts.
Corporate loans also saw an increase in May, fueled by major banks' expanded lending operations and a heightened demand for operating funds from some large corporations. Corporate loans grew by 8 trillion won in May, following a 14.4 trillion-won increase in April, with outstanding corporate loans totaling 1,346.6 trillion won at the end of May.
Separate data from the Financial Supervisory Service (FSS) indicated that household loans from all financial institutions rose by 6 trillion won in May, up from a 5.3 trillion-won increase in April. Home-backed loans from institutions including savings banks and insurance firms increased by 5.6 trillion won in May, compared to a 4.8 trillion-won rise in April. Other household loans rose by 0.4 trillion won, reversing a 0.5 trillion-won decline from the previous month.
The Financial Services Commission (FSC) announced plans to enhance monitoring of home-backed loans in the metropolitan area. It confirmed that stricter rules on household loans will be implemented in July as scheduled, amidst persistently high debt levels.
The new regulations will apply tighter debt-service-ratio (DSR) rules to nearly all types of household debts, with the stress interest rate set to increase to 1.5 percent from the current 0.75 percent. However, the stress interest rate for household loans outside the capital area will remain at 0.75 percent. The DSR ratio, introduced by the FSC in February 2024, limits aggregate lending by measuring the proportion of a borrower's income required to service principal and interest payments.