Sharp Drop in Household Loans, 'Interest Rate Brake' Takes Effect

Average Interest Rates on Credit Loans and Mortgage Loans Raised Simultaneously by 5 Major Banks
Loan Growth Plummets Amid Limit Reductions and Demand Decline

Reference image of bank loan counter (Photo by Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] The household loan interest rates of major commercial banks, which had been rising repeatedly, have all increased simultaneously this month. Measures such as reducing preferential interest rates to curb the surge in household loans caused by the craze for 'Yeongkkeul' (borrowing to the limit) and 'Bittu' (investing with loans) have resulted in an overall increase in interest rates. At the same time, with strengthened management through reduced loan limits and the added effect of decreased real estate transactions, the growth rate of household loans has significantly slowed.

According to the financial sector on the 26th, the average interest rate on personal credit loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 2.58% this month. The average interest rate, which had been continuously falling due to the base rate cuts, rebounded starting last month (2.51%). The interest rate on mortgage loans (installment repayment type) also steadily decreased, recording 2.51% last month before rising by 0.11 percentage points to 2.62% this month.

The financial authorities ordered banks to manage the total loan volume as household loans, especially credit loans, repeatedly increased to record monthly highs, raising concerns about delinquencies and defaults. Banks began implementing loan restraint measures in earnest starting last month.

A representative measure was the reduction in the scope of preferential interest rates applied when handling major loan products. For example, the 0.3% preferential interest rate offered on the condition of salary transfers was lowered by 0.1 percentage points to 0.2%. In some cases, preferential interest rate items were completely removed. The average household loan interest rates compiled monthly by banks are based on the interest rates of loans actually handled in the previous month. This indicates that banks have taken a more conservative approach to lending since last month.

Additionally, banks worked to suppress total loan volume by significantly reducing loan limits for high-income and high-credit customers, sometimes by as much as half. This was intended to somewhat curb the trend of borrowing more than twice their annual salary based on high income and credit to invest in real estate, stocks, and other areas rather than for living expenses.

'Loan Tightening' to Continue for the Time Being
"Modest Increase Expected in Q4"

Based on these moves by banks, the growth rate of household loans has noticeably slowed. As of the 22nd of this month, the outstanding household loans at the five major banks amounted to KRW 654.4936 trillion, an increase of KRW 4.6027 trillion from the end of September (KRW 649.8909 trillion). Although there are still business days left this month, the increase is 30% less than last month (KRW 6.5757 trillion) and 45% less than August (KRW 8.4098 trillion), when the increase was at a record high, indicating a clear downward trend.

In particular, mortgage loans, which increased by KRW 4.4419 trillion last month, rose by only KRW 2.7582 trillion this month. This is analyzed to be influenced by the recent decline in apartment transactions due to measures such as the June 17 real estate policy, which also reduced loan demand. The increase in credit loans this month (KRW 1.6401 trillion) also sharply decreased compared to last month (KRW 2.1121 trillion) and August (KRW 4.0705 trillion).

The tightening of loans by banks is expected to continue for the time being. Kim Ki-hwan, Vice President (CFO) of KB Financial Group, said during the earnings conference call on the 22nd, "This year, credit loans and large corporate loans increased significantly, and policy loans and financial support were provided, causing loan growth to exceed plans. However, from the third quarter, we have begun to actively manage profitability and soundness, and loans in the fourth quarter are expected to increase only slightly compared to the end of September."

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