Personal credit loans from major banks in Korea have surged by over 600 billion KRW in the past fifteen days, reversing a three-month decline. The spike has raised concerns about potential impacts on the real estate market. According to financial industry sources, as of March 17, the five major commercial banks (Kookmin, Shinhan, Hana, Woori, and NongHyup) saw their personal credit loans increase by 613.1 billion KRW.
This rise contrasts with the last year’s trend when credit loans decreased by 4.8 trillion KRW in December and continued to drop by 1.59 trillion KRW in January. Market analysts warn that if the current trend continues, the increase in credit loans this month could surpass the peak seen 37 months ago in August 2022, which was 849.5 billion KRW.
An executive from a major bank noted that, despite previous efforts to curb loan growth by setting higher thresholds on credit loans, the demand suppressed since last fall has picked up again this month after the impact of year-end bonuses and tax refunds abated. Furthermore, the lifting of certain real estate transaction restrictions has fueled a surge in Seoul’s property prices.
Currently, the acceleration in credit loan growth is outpacing the overall increase in household loans by the five major banks. For instance, while the total increase in household loans this month was 1.2047 trillion KRW, the portion of housing loans only accounted for 602.8 billion KRW.
There are concerns that the rising real estate prices in Seoul could spur more individuals to take on additional loans, exacerbating the household debt issue. With interest rates decreasing due to a drop in the Cost of Funds Index (COFIX) used by banks to set floating mortgage rates, there are expectations of increased loan applications driven by genuine demand. However, the introduction of Phase 3 of the Debt Service Ratio (DSR) regulation in July could lead to a surge in loans as individuals rush to secure loans before stricter evaluations are enforced.
Banks are engaged in monthly management of total loan amounts to prevent excessive lending, with even open-run phenomena occurring where loan applications close quickly due to overwhelming demand. As financial authorities apply pressure to control household credit and lower interest margins, banks find themselves in competitive “open-run” scenarios where loans are quickly closed on the day they open.