Household loans across South Korea's financial sector fell by 2.2 trillion won ($1.5 billion) last month, turning negative for the first time this year, with credit loans accounting for the bulk of the decline. Analysts attribute the drop to weaker demand for borrowing to invest in stocks as the equity market retreated.
Household loans at all financial institutions fell 2.2 trillion won from the previous month in September, according to data on household lending trends released by financial authorities on the 15th. It was the first net decline since December last year, when the balance fell 1.2 trillion won.
Credit loans drove the overall decrease, falling 3 trillion won. The decline widened sharply from 400 billion won in August to 3 trillion won in September. As a result, other loans, which include credit loans, fell 5.5 trillion won, a bigger drop than the 1.5 trillion won recorded a month earlier. Mortgage loans rose 3.3 trillion won, slowing from the 4.3 trillion won increase in August.
By sector, household loans at banks rose just 600 billion won, far below the 3.5 trillion won increase the previous month. Household loans at non-bank financial institutions fell 2.8 trillion won, a wider decline than the 700 billion won drop a month earlier. Lending decreased across all non-bank sectors, including mutual finance, insurers, specialized credit finance companies and savings banks. Financial authorities said the decline stemmed from housing market conditions, including fewer property transactions and lower move-in volumes, as well as seasonal factors such as quarter-end sales and write-offs of non-performing loans and holiday bonuses.
While loan growth has stalled, borrowing costs are under upward pressure. COFIX, the benchmark for variable-rate mortgages at banks, stood at 3.43% in September based on newly handled loans, up 0.25 percentage points from the previous month. That was the largest monthly increase in 46 months, since November 2022, when the rate rose 0.36 percentage points after the Bank of Korea raised its base rate by 0.5 percentage points.
The balance-based COFIX rose 0.1 percentage point from the previous month to 3.15%, while the new balance-based COFIX gained 0.08 percentage point to 2.79%.
Following the increase, commercial banks plan to reflect the higher COFIX in variable rates on new mortgage loans. KB Kookmin Bank will raise its six-month COFIX-linked variable rate on new mortgages to a range of 4.64% to 6.04% from 4.39% to 5.79%. Rates on jeonse loans (a lump-sum deposit lease) guaranteed by the Korea Housing Finance Corporation under the same benchmark will rise to 4.48% to 5.88% from 4.23% to 5.63%. Woori Bank will also lift its six-month COFIX-linked variable rate on new mortgages to 5.00% to 6.20% from 4.75% to 5.95%.