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South Korean debt stress, bank profits and credit risks

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2026-10-26 01:05 UTC → 2026-11-02 08:02 UTC · added ~~removed~~

In mid-August 2026, South Korea’s household credit was projected to exceed 2,000 trillion won. To manage this, the Financial Services Commission doubled the annual household debt growth target from 1.5% to 3.0%. In response, major banks implemented dual strategies: tightening restrictions on general mortgages and credit loans while expanding group loans for residential move-ins. Financial stability risks have intensified. By August, domestic bank loan delinquency rates reached 0.69%, the highest level in nearly ten years. This rise was driven by increases in both corporate and household sectors; corporate delinquency reached 0.86%, while non-mortgage household loans hit 0.91%. The Financial Supervisory Service noted that while rates are rising among vulnerable sectors like small businesses, the situation remains below the ten-year average of 0.78%. In September, the household debt balance was projected to decrease for the first time this year, dropping by an estimated 1.5 to 2 trillion won, primarily due to a decline in credit loans. However, the self-employed sector faces significant strain, with delinquency rates for vulnerable individuals reaching 12.71% as of late June. Additionally, the insurance sector has seen a rise in long-term mortgage arrears exceeding 90 days. Despite rumors of a ban on mortgages for homes priced above 1.5 billion won, Financial Services Commission Chairman Lee Eok-won clarified such claims are “absolutely not true.” However, regulators emphasized that managing total debt remains a priority, noting that South Korea’s debt levels are viewed as excessively high by international organizations, stating, “There is no country where loans are issued as easily as in Korea.” By October 2026, new vulnerabilities emerged. The Korea Institute of Finance reported that 60.4% of corporate loans are concentrated in the real estate (36.5%) and wholesale/retail (23.9%) sectors, warning of potential credit risks spreading to non-banking institutions.

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