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Nonbank lending surges in Korea even as overall household loan growth slows

Published: 10 Dec. 2025, 18:52 Updated: 10 Dec. 2025, 19:29

Apartment complexes in Seoul are seen from central Seoul's Namsan on Nov. 21. [NEWS1]

While overall household loan growth slowed last month across Korea’s financial sector, lending surged among nonbank institutions such as insurance companies, mutual finance firms and credit card companies. Analysts say tighter regulations on banks are driving borrowers to seek loans from alternative sources despite higher interest rates.

The Financial Services Commission (FSC) held a meeting with the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, the Bank of Korea (BOK) and the Financial Supervisory Service to review household debt trends on Wednesday.

According to the FSC’s “Household Loan Trends in November” report released during the meeting, household debt across all financial institutions increased by 4.1 trillion won ($2.8 billion) last month compared to October, down from the 4.9 trillion won on-month increase in October. The decrease is attributed to regulatory measures, including the real estate policy released on Oct. 15 and the government’s annual cap on household loan growth.

However, a breakdown by institution reveals a distinct “balloon effect.” Household loans from banks rose by just 1.9 trillion won in November, nearly half the 3.5 trillion won increase in October. In contrast, household loans from nonbank institutions jumped from 1.4 trillion won to 2.3 trillion won — a roughly 64 percent increase. Mutual finance firms accounted for 1.4 trillion won of that growth, followed by insurers with 500 billion won.

Apartment complexes in Seoul are seen from the Lotte World Tower in Songpa District, southern Seoul, on Oct. 15. [NEWS1]

“It’s unusual for growth in nonbank loans to surpass that of the banking sector,” said one commercial bank official. “Borrowers who were blocked from taking out loans from banks turned to other channels, accepting higher interest rates.”

The trend was especially evident in mortgage loans. Bank-issued home loans dropped from 2 trillion won to 700 billion won — the lowest since March 2022, when it was 500 billion won. Meanwhile, home loans from nonbank institutions surged from 1.2 trillion won to 1.9 trillion won, driven by robust demand in the still-active real estate markets in Seoul and surrounding areas.

“The Oct. 15 measures have helped slow the pace of housing price increases overall, but in key areas, price growth has not only remained steady but has even picked up again,” said Park Min-cheol, head of market oversight at the BOK.

Customers wait at a KB Kookmin Bank western Seoul branch in Yeouido on Nov. 24. [YONHAP]

As bank mortgage lending fell sharply, growth in other loan categories — including unsecured loans — overtook mortgage lending, reaching 1.2 trillion won in November. While this is slightly below October’s 1.4 trillion won increase, the upward trend continues. The BOK attributed the increase to growing investment in domestic and overseas stock markets but warned of rising volatility, noting that “continued monitoring is needed.”

At the same meeting, financial authorities announced that the third phase of the “stress DSR” — or debt service ratio — regulation, which was set to take effect next year, will be postponed for six months for home loans in nonmetropolitan areas. Unlike the capital region, housing and construction markets in provincial areas remain sluggish. As a result, through June 2026, regional mortgages will remain subject to the current phase-two rule, which applies a 50 percent stress interest rate when calculating loan limits.

A stress interest rate is a hypothetical higher rate used in DSR calculations to assess a borrower’s ability to repay loans under adverse financial conditions. Instead of using the actual lending rate, regulators apply a higher “stress rate” — in this case, 50 percent above the actual rate — to ensure borrowers can still meet their repayment obligations if interest rates rise significantly. This measure is designed to prevent excessive borrowing and strengthen financial stability.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM SEON-MI [[email protected]]