Bank of Korea: "Rapid household loan growth to continue through Q3...Caution on rate cuts"

The Bank of Korea projected that the rapid increase in household loans will continue until the end of the third quarter this year. The central bank struck a cautious stance on additional policy rate cuts.

According to the Bank of Korea and others on the 1st, Vice Governor Yu Sang-dae and other executive officials expressed this position at a National Policy Planning Committee briefing on the 27th of last month.

The Bank of Korea's report was held on the 27th, from 10:30 AM for one hour and 30 minutes. The government's loan regulations were finalized at an inter-agency "Emergency Household Debt Review Meeting" at 8:00 AM the same day, and announced at 11:30 AM.

The Bank noted, "Recently, the greater Seoul housing market has shown overheating, with both prices and transaction volumes surpassing last August's levels, heightening household debt risk," and added, "In June, Seoul apartment price growth is at its highest since September 2018, and the transaction volume is also expected to surpass last year's peak."

In the fourth week of last month, the apartment price growth rate in Seoul's Gangnam 3 Districts reached an annualized 53.7% (weekly 0.83%). With expectations for further price gains rising, home price increases are spreading throughout all of Seoul and key areas of the metropolitan region.

The Bank diagnosed, "Going forward, household lending may surge in August and September under the influence of this real estate market overheating." There is analysis that the situation from last August—when household loans of the five major banks (KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NH Nonghyup Bank) grew by almost ₩10 trillion in just one month, hitting a record increase—could be repeated. The overall financial sector's monthly increase in household loans already reached ₩6 trillion in May this year, and reportedly nearly ₩7 trillion in June.

The Bank emphasized, "We will carefully determine the timing and pace for any further rate cuts, so that excessive easing expectations do not fuel upward pressure on house prices."

In the briefing, the Bank also pointed out that financial institutions' credit supply is being concentrated in the real estate sector, restricting the flow of funds to more productive sectors. At the end of last year, real estate credit stood at ₩1,923.5 trillion, accounting for 49.7% of all private credit.

The Bank stated, "While maintaining macroprudential policy tightening, we will respond in cooperation with the government to further strengthen related regulations." In the event that Seoul housing prices do not stabilize even with current loan regulations, the Bank officially reported to the National Policy Planning Committee its high-intensity additional regulation proposals. Specifically, it mentioned extension of the designated adjustment zones, speculative zones, and speculative overheated districts, as well as additional land transaction permit zones in Seoul.

The Bank further revealed it is reviewing raising the risk weight on home mortgage loans by financial institutions. If the minimum risk weight for new home mortgage loans is raised, banks will have no choice but to be more restrained in increasing loans to maintain their capital ratio.

Shin Yong-hyun, Hankyung.com Reporter yonghyun@hankyung.com