S. Korea warns of household debt growth, calls for additional regulations

Seoul : Recent deregulatory moves in the property market and easing of banks' lending rules could stoke household debts, making it necessary for authorities to consider additional measures to ensure financial stability, the central bank said on Thursday.

The Bank of Korea (BOK) made the suggestion in its latest biannual monetary policy report, as government data showed household loans extended by banks rose for the first time in three months in February, reports Yonhap news agency.

"Uncertainties remain high regarding the trend of household debts given the current housing market situation and other factors," the report read.

"In line with easing financial conditions amid the BOK's monetary easing cycle, banks' relaxation of some of their lending rules and the government's lifting of part of the land transaction permission zones in Seoul could raise expectations of rising housing prices and lead to an increase in household debts," the BOK said.

Last year, major lenders had implemented tight lending rules as financial authorities sought to rein in surging household debts and rising home prices.

But some of the regulations were eased at the beginning of 2025, while demand for loans went up in the season for moving.

The Seoul municipal government also lifted part of the so-called land transaction permission zones imposed in some areas of Seoul's Gangnam, Seocho and Songpa on February 13, leading to a marked increase in real estate prices in such areas.

"The lifting of the land transaction permission areas has also affected adjacent regions, and the number of housing transactions has risen more than expected recently," Deputy Gov. Park Jong-woon said. "A growth in housing transactions tends to cause an increase in household borrowing,"

Industry data showed that housing prices in the three districts in southern Seoul rose 0.2 percent in the second week of March, marking the sharpest weekly growth since August.

Banks' outstanding household loans stood at 1,143.7 trillion won ($787.34 billion) as of end-February, up 3.3 trillion won from a month earlier.

"In case the growth of household loans is expected to gather pace, it will be necessary to respond through additional macroprudential measures, such as the expansion of the scope of debt service ratio (DSR) application," the report said.

Tighter DSR rules will come into effect in September as planned, with details to be finalised by May, the Financial Services Commission (FSC) has said.

The FSC introduced the so-called stress DSR ratio, which measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income, serving as a ceiling on aggregate lending.