Regulator to further tighten curbs on household debts from next week

All local lenders in South Korea will be forced to sharply reduce their household lending, while home-backed loans for home purchases in the capital area will be capped at 600 million won (US442,000), the financial regulator said Friday, in an unprecedentedly aggressive move to rein in rising household debts.

Starting next week, all local banks, insurers and other lending institutions will be asked to reduce their target level of aggregate household loans to 50 percent of their earlier targets, according to the Financial Services Commission (FSC).

The target for policy loans extended to low-income earners and newlyweds will be cut by 25 percent.

Every year, banks are advised to set their loan extensions at certain levels to curb a sharp rise in household debts.

With the coming measures, banks and other financial institutions are expected to sharply reduce loans to households.

The FSC said all financial institutions will also be required to manage their loan extensions. Currently, only banks are subject to government oversight over household debt management.

Also, mortgage loans extended to buy homes in the Seoul metropolitan area and regulated regions will be capped at 600 million won.

The regulator said it had initially intended to manage the annual growth of household debts at 75 trillion won this year.

With the measures, the regulator expects some 20 trillion won less to be extended in household loans than earlier targets for the year.

The latest measures come as household loan growth has been accelerating in recent months.

Household loans extended by banks jumped 5.6 trillion won from a month earlier in May, the largest on-month increase in eight months, largely driven by an increase in housing transactions.

Home-backed loans rose by 4.2 trillion won in May from the previous month, marking an acceleration from a 3.7 trillion-won increase logged in April.

This year, home prices have gained traction, which again led to a rise in household debts.

Seoul’s apartment prices have been on an upward trend for 20 consecutive weeks since turning positive in early February, while the pace of gains accelerated after banks eased lending regulations earlier in the year and the Seoul city government temporarily lifted its land transaction approval requirements.

The trend of rising household debts also came as the country’s central bank is widely expected to continue its monetary easing march amid an economic slowdown.

Last month, the Bank of Korea cut its key rate by a quarter percentage point to 2.5 percent in an effort to prop up economic growth amid sluggish domestic demand and uncertainties stemming from Washington’s sweeping tariff scheme.

It marked the fourth reduction since October 2024, when the BOK began a monetary easing cycle for the first time since August 2021. Since then, the central bank has lowered the policy rate by a total of 1 percentage point through May.