The largest increase in three years provisionally tallied
‘Balloon effect’ as loans from five major banks decrease
Authorities considering submission of targets for secondary financial institutions
Possibility of raising stress DSR
Last month, household loans from secondary financial institutions increased by more than 2 trillion won, marking the largest rise in nearly three years according to provisional figures. Financial authorities are considering additional regulations to control the ‘balloon effect,’ such as requiring secondary financial institutions to submit annual household loan management targets.
According to the financial sector on the 3rd, as of the 30th of last month, the total household loan balance across the entire financial sector increased by approximately 6 trillion won compared to September. Despite the financial sector’s household loans expanding by 9.8 trillion won in August, marking the largest increase in three years and one month, the growth narrowed to 5.2 trillion won in September, only to resume an upward trend in a month.
As of the end of October, the household loan balance of the five major banks (KB, Shinhan, Hana, Woori, NH Nonghyup) was 732 trillion 812 billion won, a mere increase of 1 trillion 1141 billion won from the end of September (730 trillion 9671 billion won). However, household loans from regional banks, internet banks, and secondary financial institutions surged by about 5 trillion won.
In particular, secondary financial institutions’ household loans provisionally increased by more than 2 trillion won as of the end of last month compared to the end of the previous month, marking the highest level since the increase of about 3 trillion won in November 2021.
As banks tighten household loan reduction policies, loan demand seems to have shifted to secondary financial institutions. Notably, household loans reportedly increased by more than 1 trillion won in cooperative banking sectors like Saemaul Geumgo. Furthermore, card loan increases were reported to be in the 500 billion won range, and insurance policy loan increases around 300 billion won.
Given the confirmation of the loan ‘balloon effect,’ financial authorities are reviewing measures to strengthen management of household loans by secondary financial institutions. During a meeting on the 11th of this month, financial authorities plan to discuss the possibility of receiving annual household loan growth targets from secondary financial institutions similar to bank regulations. Additionally, if the growth trend in secondary financial institutions’ household loans continues, direct measures such as raising the rate of the stress Debt Service Ratio (DSR) for housing loans in the capital region from the current 0.75 percentage points to 1.2 percentage points may be taken. Raising the stress DSR rate would result in a reduced loan limit by applying an additional interest rate (stress rate) when setting the loan ceiling.