[Editorial] Efforts to Curb Household Loans Must Not Harm Genuine Borrowers

On the 21st, Lee Eog-weon, Chairperson of the Financial Services Commission, announced that the government will consistently maintain its policy of managing household debt growth next year. The plan is to set the increase rate of household debt below the real economic growth rate to ensure a soft landing. In effect, this means the government intends to tighten lending to reduce household debt. Given that household debt has already surpassed 1,900 trillion won, stabilizing debt is certainly a critical policy issue. Excessive household debt has created structural vulnerabilities in the Korean economy. The key challenge is how to minimize the negative side effects of policies aimed at curbing household debt.
First and foremost, the government must reduce the risk of causing greater harm to genuine borrowers with legitimate needs. When the government sets an annual lending cap, there is often a rush for loans at certain times of the year. This creates significant inconvenience for those who truly need funds. Even those seeking loans for home purchases or basic living expenses may find themselves blocked. This is especially problematic during periods of seasonal demand, such as year-end weddings or moving. In fact, as the year draws to a close, the increase in household loans at the five major banks is more than 7% below the target. As the government tightens household lending, some banks have suspended not only mortgage loans for home purchases but also those for living expenses.
Thorough oversight is also required to manage the so-called 'balloon effect.' When access to loans from mainstream financial institutions is restricted, borrowers seek alternative sources. The surge of over 500 billion won in credit loans in December alone is evidence of this trend. Of greater concern is the possibility that borrowers may turn to non-banking financial institutions (NBFIs) or even illegal private lending. It is crucial to distinguish between speculative demand and genuine need, as both are present in this phenomenon. Policymakers must take a nuanced approach that protects those in need while blocking speculative demand.
It is also problematic to uniformly restrict household loans under the pretext of expanding 'productive finance.' Seventy percent of household loans from banks are mortgage loans, which may limit the flow of funds into more productive sectors. However, it is risky to stigmatize all mortgage loans as unproductive. Loans for genuine home purchases and speculative multiple-property mortgages must be clearly differentiated. Blanket restrictions on household lending may result in unintended harm to well-intentioned borrowers. A differentiated approach based on the purpose and nature of the loan is preferable.
Confusion among financial consumers over household loans is likely to intensify next year. The target growth rate for household loans set by banks for next year is around 2%, which is only half the projected nominal Gross Domestic Product (GDP) growth rate of 4%. As lending standards tighten, genuine borrowers may be harmed or forced into the shadow financial sector—an outcome that must be avoided.
Managing household debt requires a long-term perspective. Policies that focus solely on short-term results often lead to market confusion and backlash. This ultimately inflicts greater pain on economic actors and can erode trust in policy. Therefore, financial authorities must maintain the overarching goal of debt stabilization while devising efficient management strategies that minimize side effects during implementation. To this end, policies should be designed to be predictable so that borrowers are not left in confusion.