Rising Household Loans... Financial Services Commission Holds Household Debt Review Meeting with Banks

Rising Household Debt Due to Interest Rate Cut Expectations and Housing Market Recovery
"Borrow Only What You Can Repay and Establish the Practice of Repaying in Installments from the Start"

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where the financial authorities decided to include mortgage loans (Judaemae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. The financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@

In May, household loans in the banking sector increased by more than 5 trillion won, the largest amount in seven months, prompting the Financial Services Commission to convene the five major commercial banks to review household debt.

On the 12th, the Financial Services Commission announced that under the chairmanship of Secretary-General Kwon Dae-young, it held a household debt review meeting with the Bank of Korea, the Financial Supervisory Service, the Korea Federation of Banks, and the five major commercial banks to discuss the recent status of household loans, future management plans, and risk factors for household debt in the second half of the year. Looking at the recent status of household loan handling, as of May, the balance of household loans increased by 5.4 trillion won compared to the previous month, expanding the monthly increase.

The Financial Services Commission diagnosed that the acceleration of household loan growth since April is due to the recovery of housing transactions, ongoing expectations of interest rate cuts in the second half of the year, and the maintenance of loan interest rates in the high 3% range amid external environmental pressures, which led to an expansion of the increase centered on bank mortgage loans and general policy loans such as Didimdol and Buteemok.

The attendees positively evaluated that the overall household debt increase is being stably managed, as the household debt-to-GDP ratio has declined for two consecutive years. However, since household debt turned to an increasing trend in April and given the expectations of base rate cuts and signs of housing market recovery, they agreed that the possibility of further expansion in household debt growth is increasing. Therefore, it is necessary to closely monitor household loan trends with vigilance and respond promptly.

Secretary-General Kwon Dae-young stated, "Household loans this year have increased by 3.6 trillion won (0.2%) compared to the end of last year, and are being stably managed within the range of nominal GDP growth." However, he added, "Since April, household loans have shifted to an increasing trend, and with expectations of a monetary policy shift in the second half, combined with the easing of policy mortgage requirements, recovery in real estate transactions, and discussions on tax reform, more meticulous management efforts will be required in the second half."

He continued, "Since the household debt-to-GDP ratio remains high compared to major countries, it is important to consistently and stably manage household debt and establish a loan practice of 'borrowing only what can be repaid and repaying in installments from the start' across all household debt." He also urged, "The financial sector itself should ensure that loans are handled at the frontline considering the borrower's repayment ability."

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