South Korea's five major banks fail to cut household loans in June as stock-market borrowing surges

South Korea's five largest banks have in effect failed to achieve their June target of reducing household loan balances, as sustained demand for stock-market borrowing — fueled by a buoyant equity market — continued to drive unsecured credit lending higher. Despite financial regulators' calls for stricter loan management, the persistent rise in credit loans has raised the prospect of more aggressive restrictions in the second half of the year.

As of Thursday, the combined household loan balance at KB, Shinhan, Hana, Woori and NH NongHyup banks stood at 774.5 trillion won ($501 billion), up 3.67 trillion won from the end of May at 770.82 trillion won. With roughly three business days remaining in June, the monthly increase is on track to surpass May's gain of 3.53 trillion won, marking two consecutive months of growth.

Unsecured credit loans showed the sharpest rise. The five banks' combined credit loan balance reached 108.73 trillion won as of Thursday, up 2.21 trillion won from 106.52 trillion won at the end of May. That follows a 2.17 trillion won increase in May, meaning credit loans have grown by more than 2 trillion won for two straight months. Analysts attribute the surge to investors borrowing to buy stocks as the benchmark Kospi entered what traders are calling the "9,000-point era."

Household loan balances excluding policy-backed loans — which are not counted in the overall household debt tally — also rose from the previous month. Policy loans consist largely of housing-related products such as the Didimdol mortgage program. As of Monday, the five banks' household loan balance excluding policy loans stood at 646.02 trillion won, up 824.1 billion won from the end of last year, reversing a decline of 1.57 trillion won recorded at the end of May.

Earlier this month, financial authorities summoned bank executives and urged them to tighten household loan management, following a sharp jump in lending — particularly in unsecured credit — in May. Regulators warned that banks failing to meet their overall loan-volume targets would be called in for weekly reviews.

In response, commercial banks tightened credit loan restrictions this month. They capped unsecured credit loan limits at 100 million won regardless of income, and moved to reduce the credit lines on revolving overdraft accounts that had gone largely unused when those accounts come up for renewal. Banks also restricted applications for loan refinancing through fintech platforms.

Internet-only banks joined the tightening effort. Kakao Bank applied daily caps on new credit loan applications, while K bank temporarily suspended the opening of new revolving overdraft accounts through July 31. Toss Bank said it would cut the credit limits on overdraft accounts with a utilization rate below 40 percent over the preceding three months by up to 40 percent upon renewal.

Despite these sweeping measures, credit loan growth has shown no sign of slowing, and the financial industry broadly expects regulators to introduce additional restrictions in the second half of the year.

At a household debt review meeting earlier this month, financial authorities reportedly told individual banks that if household debt growth remained inadequately controlled through June, strong regulatory measures could be imposed starting in the second half.

A real estate tax reform package the government is targeting for release next month may also include additional lending restrictions, such as limits on jeonse loans for non-resident single-home owners.

Within the banking sector, attention is focused on the possible introduction of a sector-wide common lending guideline. The approach would unify the loan restriction measures currently applied on a bank-by-bank basis into a single set of industry-wide self-regulatory rules — a tool financial authorities have deployed repeatedly during past surges in household debt.

"If a common guideline is established, the regulatory arbitrage between banks would narrow, which should at least reduce the concentration of borrowers flowing to specific lenders," an official at one commercial bank said.

Regulators are also discussing tightening daily credit loan volume controls and further reducing the current 100 million won cap on individual unsecured credit loans. Stricter rules on reverse mortgage loans, which are classified as miscellaneous loans, are also being considered. "Credit loans serve not only stock investors but also a significant number of people with genuine everyday financing needs, so it is not easy for banks to proactively impose excessively tight restrictions," said a senior lending executive at one bank.

Financial authorities said they plan to monitor whether banks' own tightening measures are producing real results before deciding on any additional regulation. However, there are concerns within the regulator that a sector-wide common guideline could give banks a basis to claim immunity from further scrutiny.

"Credit loans did increase, but the impact of existing revolving overdraft agreements was greater than that of new loans," a financial authority official said. "Since banks' own restrictions only began in earnest in June, we plan to watch the situation a little longer."

With the Bank of Korea widely expected to raise its benchmark interest rate at the July Monetary Policy Board meeting, some analysts forecast that the bar for borrowing will rise naturally even without additional regulatory action.

The four major commercial banks cut their mortgage loan balances by nearly 350 billion won below target, but were unable to rein in credit loan growth, leaving their total household loan reduction for the year through May short of the goal by 690 billion won.