South Korean Household Debt Continues to Rise Despite Government Restrictions
Despite government efforts to cool the market, household loans in South Korea surged in August, increasing by 4.2 trillion won (approximately $2.87 billion). This marks a critically important jump from the 2.2 trillion won increase seen in July – the smallest rise since March - indicating that restrictions implemented in late June are having limited immediate impact.
those restrictions included a 600 million won cap on mortgage loans in the capital region and the suspension of home-backed loans for individuals owning multiple properties, all aimed at curbing both rising household debt and escalating housing prices.
the August increase was largely driven by a rise in unsecured loans and other household credit. While the government believes the initial measures have begun to moderate market overheating, further regulations are being considered, particularly a tightening of the Loan-to-Value (LTV) ratio.
The LTV ratio, which limits borrowing based on property value, currently stands at 50% in Seoul’s anti-speculation zones.Analysts predict a potential reduction to 40%.Meanwhile, South Korea’s top five banks are experiencing widening net interest margins – the difference between interest earned and paid - reaching levels not seen since 2022, when public disclosure became mandatory. This is attributed to banks holding steady on lending rates amidst government controls on household debt, while concurrently lowering deposit rates to a three-year low. Specifically, KB Kookmin, Nonghyup, and Hana banks saw net interest margin increases of 0.1, 0.07, and 0.04 percentage points respectively in July.
