Major Banks to Manage Household Loan Growth at Half Previous Target

Borrowing money from banks will become more difficult going forward. This is because major commercial banks have decided to strictly manage the growth rate of loans extended to individuals (household loans) this year at around 1%, approximately half of what was originally anticipated. Lending management in the financial sector is set to become more stringent.

Financial authorities have set a management target of 1.5% for household loan growth across all financial institutions this year. Bank A plans to manage growth at 0.8%, with the average target for the top five banks set at around 1%. The top five banks (KB, Shinhan, Hana, Woori, NH Nonghyup) can increase their total household loans (excluding policy loans) to a maximum of KRW 6.4493 trillion this year. This represents a substantial reduction compared to last year's annual increase limit, making loan tightening unavoidable to meet growth rate targets. This is about half the level compared to the top five financial holding company chairmen's statements in their New Year's interviews in January, where they indicated they would manage household loan growth at around 2% this year.

The government aims to reduce the household debt-to-nominal GDP ratio to 80% by 2030. According to the Bank of Korea's analysis, a 1 percentage point increase in the household credit-to-GDP ratio leads to a 0.25-0.28 percentage point drop in GDP growth with a 4-5 year lag. If the household credit ratio exceeds 80%, the probability of growth slowdown and economic recession increases.

As of January 9 this year, household loans from the top five banks have decreased by KRW 6.4704 trillion compared to the end of last year, and there is currently no significant risk of exceeding the total volume limit.