South Korean banks' credit, non-housing loans surge 3.2 times over target amid 'debt-to-invest' trend

South Korean banks are struggling to manage household debt growth as credit and non-housing secured loans significantly outpaced targets in the first half of the year. The five major commercial banks collectively extended 3.47 trillion won (approximately $2.5 billion) in "other loans", which include credit and non-housing secured loans, by the end of June. This figure is about 3.2 times the banks' combined target of 1.09 trillion won.

The trend, often referred to as "bitu" or "borrowing to invest," has driven this surge. Woori Bank and Hana Bank were particularly aggressive, disbursing credit and non-housing secured loans at 8.2 and 8.9 times their respective targets, totaling 1.07 trillion won and 760 billion won. Shinhan Bank and Kookmin Bank also exceeded their goals, lending 709 billion won and 1.18 trillion won, respectively. Only Nonghyup Bank saw a decrease in these loan types, falling short of its target.

In contrast, housing-backed loans (joodaemdae) have generally seen a reduction. Kookmin Bank reduced its housing loan portfolio by 1.31 trillion won, nearing its reduction target. Woori Bank also cut its housing loans by 503 billion won, significantly exceeding its goal. Shinhan and Hana banks also reduced their housing loan amounts, though they did not meet their specific reduction targets.

Nonghyup Bank stands out as an exception, with its housing loans increasing by 1.7 trillion won, far exceeding its target and causing its overall household debt to surpass its annual goal. This situation has prompted banks to tighten their lending criteria for housing-backed loans, which are considered more manageable to control than credit lines.

Banks find it difficult to immediately restrict existing borrowers from drawing funds from pre-approved credit lines, such as overdraft accounts. However, housing-backed loans, involving larger individual amounts, offer more flexibility for banks to adjust limits during the initial approval process. Consequently, some banks have reduced housing loan limits, temporarily suspended loan applications through certain channels, or restricted mortgage insurance coverage to manage their loan portfolios.