South Korean Banks to Tighten Lending for Households for Sixth Straight Quarter

South Korean banks are poised to make it harder for households to borrow money for the sixth quarter in a row, according to a Bank of Korea analysis. The trend, driven by a continued focus on managing household debt and rising interest rates, is expected to intensify in the third quarter of 2026.

The analysis indicates that both housing-related loans and general household loans will face stricter lending conditions. The index for housing loans, which includes mortgages, collective loans, and jeonse loans, is projected to fall to -11 in the third quarter, continuing a trend of tightening seen since the second quarter of 2025. Similarly, the index for general household loans, covering credit loans and overdrafts, is expected to drop to -14, reflecting a significant reduction in lending.

Despite the tightening, demand for general household loans is anticipated to rise, fueled by needs for living expenses and investment in the stock market. However, demand for housing-related loans is expected to decline due to stricter regulations and increasing interest rates. The Bank of Korea's base rate has already risen for the first time in three and a half years, with further increases on the horizon, pushing up lending rates.

Meanwhile, corporate lending is expected to remain stable, with both large and small businesses maintaining their current levels. However, credit risk is projected to increase across both corporate and household sectors. Concerns about the declining debt repayment capacity of vulnerable borrowers are contributing to this outlook, alongside external economic uncertainties that are impacting businesses, particularly small and medium-sized enterprises.