Financial Supervisory Service: "Delinquency Rate Manageable... Household Debt Growth Also Limited"

On the 25th, the Financial Supervisory Service Holds a Meeting to Review Household Loan Soundness

Regarding the recent increase in household loans and rising delinquency rates in the financial sector, financial authorities have assessed the situation as "manageable" and stated that they will manage potential risk factors in the loan sector going forward.

On the 25th, the Financial Supervisory Service (FSS) held a 'Household Loan Trends and Soundness Inspection Meeting' with financial industry representatives and private experts to review household loan trends, current soundness status, and potential risk factors, and to discuss soundness management measures.

Household loans in the financial sector have returned to an increasing trend after eight months. In April of this year, household loans in the financial sector increased by 200 billion KRW compared to the previous month, marking the first increase since August 2022.

The FSS explained, "The increase in household loans is due to the special BoGeumjari Loan focused on actual demand (4.7 trillion KRW). Excluding policy mortgages, other bank loans and second-tier financial sector household loans (-2.2 trillion KRW) continued to decline in April. Currently, loan interest rates remain at a high level compared to the period of rapid loan growth in the past, and housing transactions are generally lower than in previous years, so the increase is expected to be limited going forward."

The FSS further explained that banks are currently finding it difficult to expand loan supply due to increased credit risk of borrowers, and second-tier financial institutions are under pressure from deteriorating profitability and soundness.

The FSS stated, "Although the possibility of a rapid surge in household loans is not high, the size of household loans in Korea is high at 102.2% of GDP, and depending on the future direction of asset markets and market interest rates, the growth rate could accelerate. Therefore, we plan to manage this with vigilance."

Regarding the recent rise in delinquency rates in the financial sector, the FSS said, "The situation is not severe enough to threaten the soundness and safety of the financial system. The current delinquency rate level is generally similar to the period just before the pandemic or between 2014 and 2016, and is better than during past global financial crises or savings bank incidents."

As of the end of March this year, the delinquency rates were 0.33% for banks (an increase of 0.08 percentage points from the end of last year), 5.07% for savings banks (an increase of 1.66 percentage points), 2.42% for mutual finance (an increase of 0.90 percentage points), 1.53% for card companies (an increase of 0.33 percentage points), and 1.79% for capital companies (an increase of 0.54 percentage points).

It added, "Although the delinquency rate is likely to continue rising for the time being, considering that the financial sector has recently strengthened asset soundness management through the sale and write-off of delinquent loans and enhanced post-loan management, and expanded loss absorption capacity through increased loan loss provisions and capital augmentation, the situation is not serious."

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