KOSPI Rally Fuels Borrowing Frenzy, Prompting Tighter Household Loan Rules

Fueled by the stock market rally, 'debt investment'—borrowing money to invest—has surged, causing financial institutions' household loans to increase by 9.3 trillion won in May. Loans for stock investment saw their largest jump since April 2021, with banks' 'other loans' increasing by 3.7 trillion won in May alone, resuming their upward trend. This surge is attributed to large-scale individual stock investments coinciding with seasonal demand for funds during the month of family.

Financial authorities are strengthening loan regulations to curb the rise in household debt. They are activating an emergency management system for household debt to intensively monitor the implementation of management plans, conduct continuous checks for violations of additional covenants, and enhance post-action measures such as loan recovery upon detection. Financial authorities are strictly managing the rapid increase in household loans.

Shin Jin-chang, Secretary-General of the Financial Services Commission, warned of potential expansion in mortgage loans and volatility in unsecured loans following the end of the deferral period for the heavy capital gains tax on multiple homeowners. He urged financial institutions to enhance proactive self-management. Banks are pursuing measures such as reducing the limit for new unsecured loans for high-income earners and waiving early repayment fees to encourage loan repayment.

The Financial Supervisory Service, in conjunction with financial companies, will continuously monitor for violations of additional loan covenants and provide guidance for thorough implementation of post-action measures like loan recovery for violations. Borrowers typically enter into additional covenants when taking out certain household loans, such as agreements to dispose of existing homes, prohibition of purchasing additional homes, and mandatory relocation. Violating these covenants can result in restrictions on housing-related loans for three years. In the first quarter, a total of 1,174 violations of additional covenants were detected in the banking sector.

Secretary-General Shin Jin-chang emphasized that related agencies and all financial sectors must mobilize all their capabilities to manage household debt until the increasing trend stabilizes. The government will maintain a consistent and firm stance on household debt management and implement necessary additional measures considering market conditions.