Bank Household Loans Turn Negative After 9 Months Amid 'Loan Tightening'

Decrease in Housing Transactions and Bank Household Loan Management
Effect of Two Consecutive Rate Cuts Already Reflected, Impact Minimal
Household Loans May Expand in the Future as Financial Conditions Ease

Due to financial authorities' household loan regulations, housing transactions have decreased, and with continued management of household loans by banks, bank household loans turned to a decline for the first time in nine months. However, concerns are emerging that household loans may expand again in the future as financial conditions are easing recently, such as through reductions in banks' additional interest rates.

According to the Bank of Korea's 'Financial Market Trends in December' on the 15th, bank household loans decreased by 400 billion KRW last month, turning to a decline. Bank household loans peaked in August, then slowed down, and turned to a decrease last month. This is the first decline in bank household loans in nine months since March (-1.7 trillion KRW).

Among bank household loans, mortgage loans saw the increase narrow from 1.5 trillion KRW in November to 800 billion KRW in December. This is due to the government's macroprudential policies reducing housing transaction volumes and continued management of household loans by banks. Other loans shifted from an increase of 400 billion KRW in November to a decrease of 1.1 trillion KRW in December, influenced by seasonal factors such as year-end bonus inflows and the sale and write-off of non-performing loans.

Park Min-cheol, Deputy Head of the Market General Team at the Bank of Korea's Financial Market Department, explained, "Although bank household loans were negative in December, non-bank loans are increasing mainly in mortgage loans. Non-bank loans are primarily growing in group loans related to new apartment move-ins, but the overall household loan volume is still on a slowing trend."

He added, "Household loans will continue to grow at a low rate for the time being, but as financial conditions gradually ease (such as through reductions in additional interest rates), the situation remains highly uncertain in the long term. If expectations for easing financial conditions strengthen, leading to lower loan interest rates and revitalized housing transactions, it is not possible to rule out the possibility of household debt expanding again."

Regarding the effect of the base interest rate cuts, he said, "Although the base rate was cut twice consecutively since October, the government's macroprudential policies are still effective, and the financial sector is also managing household loans. The effect of the rate cuts was already reflected in advance and has not led to increased household loans or boosted household housing purchase sentiment."

Bank corporate loans sharply decreased last month due to seasonal factors. Corporate loans, which increased by 2.2 trillion KRW in November, decreased by 11.5 trillion KRW in December. This is the largest decline since December 2016 (-15.2 trillion KRW). SME loans shifted from an increase of 2 trillion KRW to a decrease of 7.1 trillion KRW due to temporary repayments for year-end financial ratio management by companies, reduced loan operations by major banks to manage capital ratios, and the sale and write-off of non-performing loans. Large corporate loans also shifted from an increase of 200 billion KRW to a decrease of 4.3 trillion KRW due to repayments of credit lines for year-end financial ratio management, and a slowdown in facility fund demand amid domestic and international uncertainties.

Deputy Head Park explained, "Typically, corporate loans in December record negative figures due to seasonal factors such as loan repayments for year-end financial ratio management and quarter-end sale and write-off effects. However, the large decline last month reflects the sluggish corporate loans at the end of last year. As global uncertainties increased, companies postponed overall investments, leading to a slowdown in facility fund demand, and banks strengthened profitability and soundness management as they achieved corporate loan targets early."

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