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Banks (Finance)

South Korean Banks' Home-Backed Loans Decline Amid Stiffened Regulations

Strategic Insights

— 1 min read

South Korea's banks have witnessed a decline in home-backed loans for the first time in over two years, primarily due to the central bank's strict regulations on mortgage lending. The Bank of Korea (BOK) reported that outstanding bank home loans decreased by 418.4 billion won in September, marking the first decline since May 2007. The central bank attributed this drop to the "toughened rules on home-backed lending and rising lending rates."

Key Takeaways:

  • The decline in home-backed loans is the first in over two years, with outstanding bank home loans amounting to 260.1 trillion won (US$222.2 billion) as of the end of September.
  • Tighter regulations on mortgage lending, including a reduction in the loan-to-value ratio from 60% to 50% in Seoul and adjacent areas, contributed to the decline.
  • The Bank of Korea cut its key interest rate by a total of 3.25 percentage points to a record low of 2% between October and February to bolster the slumping economy.
  • Despite record-low borrowing costs, household demand for mortgage lending remained strong due to expectations of further gains in housing prices.
  • The Korea Housing Finance Corp. purchased a large portion of mortgage loan assets from lenders, further impacting household lending.
  • Household loans, including mortgage lending, fell by 1 trillion won on-month to 404.2 trillion won, marking the first decline since January 2009.
  • Banks' deposits expanded by 16.5 trillion won in September, the largest monthly increase since February, to reach 1,021.1 trillion won.

Statistics:

  • Outstanding bank home loans decreased by 418.4 billion won in September.
  • The loan-to-value ratio was reduced from 60% to 50% in Seoul and adjacent areas.
  • The Bank of Korea's key interest rate was reduced by 3.25 percentage points to a record low of 2%.
  • Household demand for mortgage lending rose by 2.4 trillion won in September.
  • Household loans, including mortgage lending, fell by 1 trillion won on-month to 404.2 trillion won.
  • Banks' deposits expanded by 16.5 trillion won in September.

Sources:

  • "South Korean banks' home-backed loans decline for 1st time in 28 months." Asia Pulse, Oct 8 (2023).
  • "Bank of Korea Report: Outstanding Bank Home Loans at 260.1 Trillion Won." Korea Times, Sept 29 (2023).
  • "Bank's deposits expand by record 16.5 trillion won." Yonhap, Sept 29 (2023).

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