South Korea

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Surge in Household Lending and Debt Reshapes South Korea’s Financial Sector
June 16, 2025 | Financial System

Rapid growth in household loans and debt is reshaping South Korea’s financial landscape.

**Loans extended by South Korea’s five major banks rose sharply through mid-June, driving the total balance to approximately 750.8 trillion won as of June 12.**
That figure marks a nearly 2 trillion won increase since May 31, continuing a string of monthly gains that began in February. March new lending hit 1.8 trillion won, climbed to 4.5 trillion won in April, and rose further to 4.99 trillion won in May. At the same time, the average daily increase in loan balances and loan application volumes—leading indicators of borrowing—both accelerated significantly.

**Mortgage loans accounted for most of this growth, climbing by 1.48 trillion won to 595.14 trillion won by June 12.**
Unsecured credit also expanded by around 600 billion won, reaching 103.9 trillion won, its highest level since last November. In the first 12 days of June alone, banks issued over 3 trillion won in new home-backed loans, and mortgage applications nearly doubled at certain institutions between January and May, reflecting strong demand for real estate financing.

**Borrowers have tapped into high-stress loans under the yeong-geul phenomenon amid robust investment demand in real estate and financial markets and rising asset prices.**
Apartment values in Seoul surged, and the KOSPI stock index climbed for seven straight sessions, topping 2,900 points for the first time since January 2022. Investor deposits at securities firms rose to 62.9 trillion won, a more than three-year high, suggesting that many unsecured loans are channeled into stock and cryptocurrency investments.

**Although South Korea’s household debt-to-income ratio eased from a peak of 194.4 percent at the end of 2021 to 174.7 percent by the end of 2024, it remained high compared with other OECD nations, at roughly 186.5 percent in late 2023.**
Households held total financial debts of 2,370.1 trillion won against disposable income of 1,356 trillion won, indicating they carried nearly 1.7 times their annual income in debt.

**The Bank of Korea projects that household lending and housing transactions will continue their upward trend through July or August, though some month-end quarter adjustments may cause minor fluctuations in aggregate figures.**
Borrowers have delayed loan executions in anticipation of further interest rate changes or market movements during the second half of the year.

**Regulators from the Financial Services Commission and the Financial Supervisory Service will meet with major financial institutions to discuss measures to curb rapid household loan growth.**
A June 15 Bank of Korea study shows housing price expectations—measured by an index that climbed from 99 in February to 111—significantly influenced actual price increases and debt accumulation. The research argues that neutralizing expectations could have dampened both housing price jumps and loan growth, and that stronger macro-prudential frameworks may moderate borrowers’ outlooks and reduce financial stability risks.






### IMPACT ANALYSIS
**From this Development, various impacts could cascade through the system, to a lesser or greater extent, depending on the severity and criticality of the shocks.**




































Domain Causal Chain Possible Outcome
Households (Mortgage lending ↑ → House-price-to-income ratio ↑ → Housing cost-to-income burden ↑ → Household loan-delinquency rate ↑) Higher housing cost burdens push mortgage delinquencies up, risking deterioration in banks’ asset quality.
Households (Unsecured credit expansion ↑ → Consumer-credit interest-rate cap binding pressure ↑ → Household debt-service ratio ↑ → Household loan-delinquency rate ↑) Rising debt-service ratios under binding rate caps drive up unsecured credit delinquencies.
Households (Household debt-to-income ratio ↑ → DTI ceiling policy tightening ↑ → Credit-to-GDP gap ↓ → Recession probability ↑) Tighter DTI ceilings widen the credit-to-GDP gap, increasing the probability of a recession.
Financial System (Rapid surge in household lending ↑ → Macro-prudential toolkit tightening ↑ → Financial-conditions index tightening ↑ → Recession probability ↑) Macroprudential measures tighten financial conditions, dampening growth and raising recession risk.
Infrastructure & Urbanization (Mortgage lending acceleration ↑ → Affordable-housing finance ecosystem strain ↑ → Housing-price growth ↑ → Housing-affordability index ↓) Strained affordable-housing finance channels fuel price growth, eroding housing affordability.




### BOTTOM LINE

- Rapid expansion in household lending, driven primarily by a nearly 1.5 trillion won surge in mortgage loans and an uptick in unsecured credit for investment, is straining borrower repayment capacity and is likely to push mortgage and consumer-loan delinquency rates higher as housing cost burdens and debt-service ratios climb.

- The rise in yeong-geul borrowing for stock and cryptocurrency bets has driven consumer-credit rates toward legal caps, elevating household debt-service obligations and leaving many borrowers vulnerable to income shocks or market downturns, which could translate into spikes in unsecured-loan defaults.

- Persistently high household debt-to-income ratios, now near 187 percent, are prompting regulators to consider tighter debt-to-income ceilings and other macro-prudential constraints, measures that are likely to curb credit growth faster than GDP and heighten the probability of an economic slowdown.

- Planned tightening of the macro-prudential toolkit—through higher risk weights on mortgages, countercyclical capital buffers, and lower loan-to-value limits—will raise borrowing costs and restrict credit availability, dampening consumer spending and corporate investment and exerting downward pressure on growth.

- Accelerated mortgage lending has overwhelmed subsidized affordable-housing finance channels, forcing more buyers into higher-cost segments of the market and further stoking property price inflation, which in turn erodes housing affordability for middle- and lower-income households.

- Elevated housing-price expectations, as shown by the index jump from 99 to 111, have fueled both asset-price inflation and household leverage; any abrupt shift in those expectations—whether due to policy moves or market corrections—could trigger a sell-off in real estate and weaken bank balance sheets.

- Borrower hesitancy to execute loans amid anticipation of interest-rate adjustments may cause short-term volatility in credit figures but also underscores borrower sensitivity to policy changes, suggesting that even modest rate hikes could sharply curtail new lending and consumer outlays.
South Korea Moves to Block Leaflet Launches Amid Tensions on Inter-Korean Border
June 16, 2025 | Geopolitics & Defense

South Korea is intensifying efforts to halt anti-Pyongyang leaflet launches along the inter-Korean border.


**President Lee Jae-myung directed government ministries on June 14 to develop and implement measures preventing civic groups from sending anti-North Korean materials by balloon from border areas, following a recent launch from Ganghwa Island.**
The government aims to curb activities it deems illegal and hazardous to local residents and cross-border relations.

**Presidential spokeswoman Kang Yu-jung warned that distributing leaflets without authorization endangers people living near the Demilitarized Zone and risks fuelling military tensions on the peninsula.**
She said authorities will pursue stern penalties and are reviewing possible violations of the Aviation Safety Management Act and the Disaster and Safety Act.

**Law enforcement agencies have recovered three balloons in Ganghwa Island and Gimpo City and opened investigations to determine whether the civic group breached airspace regulations or public safety laws.**
Although the balloons contained Bible booklets and snacks, they lacked explicit anti-North Korean propaganda.

An interagency meeting led by the Ministry of Unification will convene on June 16, bringing together the defense and interior ministries to design comprehensive prevention strategies, outline enforcement procedures, and set forth punitive measures for offenders.

**Democratic Party spokesperson Hwang Jung-a criticized the leaflet launches as defiant of government calls to suspend such campaigns, labeling them illegal and detrimental.**
She cautioned that escalating military tensions could unsettle financial markets and undermine economic stability, and she urged strict application of the Aviation Safety Act to deter future violations.

**These steps to block leaflet launches reflect President Lee’s broader agenda to reduce military confrontations with North Korea and promote dialogue.**
Since taking office in early June, he has already ceased loudspeaker broadcasts toward the North, signaling a shift toward de-escalation along the inter-Korean border.

Monitored Intelligence for South Korea - June 16, 2025


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대통령실 "이 대통령, G7서 한미·한일 정상회담 조율 중"(종합)

Office of the President: "President Lee Coordinating Korea-US and Korea-Japan Summits at G7" (Comprehensive)

Newsis | Local Language | News | June 16, 2025 | Geopolitical Conflict and Disputes

President Lee Jae-myung is set to attend the G7 summit in Calgary, Canada on June 16, 2025. The South Korean government is coordinating bilateral meetings with the U.S. and Japan, indicating a high likelihood of summits taking place amidst ongoing consultations. Director of the National Security Office, Wi Seong-rak, emphasized this summit as a crucial moment for re-establishing South Korea's presence in summit diplomacy following a recent crisis in democracy.

Upon arrival, President Lee will engage in meetings with heads of state from major invited countries before participating in the G7 summit on June 17. He is scheduled to speak at an expanded session focused on energy security, addressing topics such as diversifying energy supplies and integrating artificial intelligence. The summit is seen as an opportunity to showcase the restoration of Korean democracy and to strategize on pressing economic and trade issues, including tariffs.

Officials indicated that working-level consultations have progressed to a tentative agreement on South Korea-U.S. and South Korea-Japan summits, despite potential variables typical of multilateral meetings. Additionally, there is a possibility for President Lee to engage in dialogue with Ukrainian President Volodyr Zelensky if he attends the summit. On the topic of relations with China, President Lee aims to balance the South Korea-U.S. alliance and cooperation with Japan while maintaining a constructive dialogue with China regarding trade and security, ensuring that bilateral discussions remain amicable.

철강·가전 이어 車까지…美 관세폭탄 속 중동 전쟁 겹쳐, 韓 수출기업 '3중고'

From steel and home appliances to cars… US tariff bomb and Middle East war overlap, Korean export companies suffer ‘triple hardship’

ET News | Local Language | News | June 16, 2025 | Geopolitical Conflict and Disputes

The global supply chain is experiencing significant disruption due to the escalating conflict between Israel and Iran, alongside the United States imposing high tariffs on various goods, including steel, home appliances, and automobiles. This combination of geopolitical tensions and economic policies is creating a challenging environment for Korean export companies. As of June 14, the Israeli military launched airstrikes on Iran, which retaliated, heightening fears of a broader conflict centered around Iran's nuclear ambitions.

The recent increase in international oil prices and instability in raw material supplies pose an additional risk to the export sector. Furthermore, the US has implemented high tariffs that affect production pressures domestically, while logistics are being disrupted due to rising freight costs and shifts in market dynamics, such as the preemptive removal of Chinese goods. On June 12, President Trump announced a 25% tariff on foreign-made cars and up to 50% tariffs on certain home appliances beginning June 23, intended to drive manufacturing back to the US.

Companies like Samsung Electronics and LG Electronics are adapting to these new tariffs by considering adjustments to their production lines in the US. Boiler manufacturers, previously exempt from tariffs, are also feeling the pressure as their products are now included in the tariff list. They are exploring alternatives such as relocating production to the US or increasing prices. In a related development, Nippon Steel's acquisition of US Steel has been approved, contingent on a significant investment in US steel facilities, exemplifying a strategy aimed at maintaining control over foreign investments while enhancing domestic production capacities.

ASEAN emerges as major export market for S. Korea amid global trade war

Yonhap | English | News | June 16, 2025 | UndeterminedTrade Issues and Numbers

South Korea's exports to the Association of Southeast Asian Nations (ASEAN) are increasing, providing a counterbalance to declines in shipments to the United States and China due to ongoing trade tensions and U.S. tariff policies. In the January-May 2025 period, exports to ASEAN reached $47.88 billion, a 4.3 percent rise from the previous year, while exports to the U.S. and China saw declines of 4.3 percent and 5 percent, respectively.

Notably, in February, South Korea's exports to ASEAN exceeded those to China for the first time in 23 years, with shipments of $9.56 billion compared to China's $9.5 billion. This trend continued in March, with exports to ASEAN reaching $10.26 billion, surpassing those to China at $10.06 billion. Although exports to ASEAN fell slightly by 1.3 percent to $10 billion in May, this was still a better performance than the 8.4 percent and 8.1 percent drops in shipments to the U.S. and China during the same month.

The Korea Trade-Investment Promotion Agency (KOTRA) has identified ASEAN as a prime export destination for South Korea this year, citing a global trend of reducing supply chain reliance on China, the rapid growth of the digital economy, and the expansion of the middle class in the region. Key export products include semiconductors, electronics, home appliances, robots, EV battery parts, and renewable energy facilities. Austin Chang of KITA highlighted that the decoupling between the U.S. and China is likely to enhance the importance of the ASEAN market as the U.S. shifts its import sources from China to ASEAN nations.

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