Key facts
- South Korean banks' household loans saw their fastest growth in nearly two years in May.
- The surge was driven by increased lending for stock investments amid a market rally.
- Total outstanding household loans reached 1,181.8 trillion won, an increase of 6.9 trillion won.
- Mortgage loans rose by 3.2 trillion won, while unsecured and other loans increased by 3.7 trillion won.
- Major banks, including Hana and Shinhan, are tightening credit loan criteria and limits.
- These measures are being implemented due to pressure from financial authorities.
South Korean banks are implementing stricter measures on credit loans as customers increasingly borrow money for stock investments, fueled by a recent market rally. This comes as household loans extended by banks saw their fastest growth in nearly two years in May.
According to data from the Bank of Korea, outstanding household loans by banks increased by 6.9 trillion won (US$4.5 billion) to a total of 1,181.8 trillion won in May. This marks a significant acceleration from the 2.1 trillion won rise in the previous month and is the sharpest on-month growth since August 2024.
Mortgage loans contributed 3.2 trillion won to the May increase, up from 2.7 trillion won in April. More notably, unsecured and other household loans surged by 3.7 trillion won, following a decline of 600 billion won in April. This represents the largest increase in such loans since April 2021.
The central bank attributed the rise in non-mortgage loans to increased individual investments in the booming stock market. The benchmark Korea Composite Stock Price Index rallied significantly in May, driven by strong gains in semiconductor shares. Individual investors were the primary drivers of this rally, with foreign investors becoming net sellers starting May 7.
In response to the surge in leveraged stock buying, major lenders such as Hana Bank and Shinhan Bank have begun tightening their criteria and limits on credit loans, reportedly under pressure from financial authorities.