South Korea to Expand Loan Capacity by 30 Trillion Won to Ease 'Loan Open Run'

South Korea is set to boost its household debt growth target for the year, a move expected to alleviate the recent surge in demand for loans. A working-level meeting this week will finalize the distribution of an additional 30 trillion won in lending capacity among banks.

The Financial Services Commission and the Financial Supervisory Service announced on August 13th that they would raise the household debt growth target from 1.5% to 3% compared to the end of last year. This adjustment will create new lending room, which will be allocated based on discussions with financial institutions. While most banks are likely to see their total loan management targets increased, the actual amount of new lending capacity will vary by institution. Performance in managing household debt up to last month is expected to be a key factor in this allocation.

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There is no guarantee that the new 30 trillion won will be properly managed if we distribute the lending capacity without differentiation, even to financial companies that have been negligent in managing their total amounts.

Authorities anticipate a significant easing of loan difficulties for prospective homebuyers. By allowing relocation, down payment, and final payment loans to be managed separately from each bank's overall debt management target, financial institutions have a greater incentive to actively offer these loans. A substantial portion of the 30 trillion won is earmarked for housing-related loans that facilitate new construction.

The market is closely watching how this 30 trillion won will address the funding needs for relocation, down payments, and final payments, as well as loans for young people and policy-backed loans. The government expects that increased lending flexibility from banks will help calm the recent "loan open run" phenomenon, which was partly driven by banks' own reductions in lending limits. The authorities also indicated a preference for allocating the additional lending capacity towards mortgage loans rather than other types of credit, such as unsecured loans.

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For those looking to purchase existing apartments, the required loan amount is not as large as for collective loans, as they have planned their funding within the existing loan-to-value limits based on housing prices. Including loan repayments, it can be managed within 30 trillion won.