Banks move to rein in credit loans amid surge in leveraged stock buying

Seoul: Banks are fast moving to rein in a surge in credit loans as customers have borrowed money to buy stocks, financial sources said on Friday.

According to various sources, Hana, Shinhan and other major lenders have tightened criteria and limits on credit loans in the face of pressure from the country’s financial authorities, reports Yonhap news agency.

The measure came as household loans extended by banks rose at the fastest pace in nearly two years in May as lending linked to stock investment grew amid a market rally.

Outstanding household loans by banks grew 6.9 trillion won (US$4.5 billion) to 1,181.8 trillion won last month, accelerating from the previous month’s 2.1 trillion-won rise, according to data by the Bank of Korea (BOK).

It marked the sharpest on-month growth since August 2024, when household loans increased 9.2 trillion won from a month earlier.

Mortgage loans increased 3.2 trillion won on-month in May, up from a 2.7 trillion-won gain in April.

Unsecured and other household loans also rose 3.7 trillion won in May following a decline of 600 billion won the previous month, marking the largest increase since April 2021, when such loans gained 11.8 trillion won.

The central bank said rising individual investments in the booming stock market drove the increase in non-mortgage loans.

The benchmark Korea Composite Stock Price Index rallied in May on strong gains in semiconductor shares, surging to the 8,400-point level from 6,500.

Meanwhile, Seoul stocks were trading sharply higher as U.S. President Donald Trump fueled hopes for an end to the Iran war.

The benchmark Korea Composite Stock Price Index (KOSPI) was trading up 606.46 points, or 7.81 percent, to 8,370.41, as of 11:20 a.m.

After opening sharply higher, the index is remaining above the 8,000-point mark, as institutional and foreign investors snapped up blue chip tech stocks.

IANS