South Korean banks have imposed strict caps on new credit loans to curb speculative borrowing and reduce systemic financial risks.

These measures follow a sharp increase in "debt-investment," where borrowers take out loans to invest in a booming stock market. Regulators fear that excessive leverage could destabilize the market and leave individuals vulnerable to price corrections.

Hana Bank and Shinhan Bank are among the institutions tightening credit. Hana Bank has set a maximum new loan amount of 100 million KRW [3], regardless of the borrower's annual income. Additionally, banks have limited non-face-to-face loan applications to increase scrutiny of borrowers.

For those with minus-account balances exceeding 30 million KRW, some institutions have implemented a maximum reduction limit of 20% of the amount [4].

The crackdown comes after data showed a significant surge in borrowing. In May 2024, "other loans" — a category including credit loans and minus accounts — rose by 5.3 trillion KRW [1]. During the same period, total household loans increased by 9.3 trillion KRW [2].

Bank of Korea Governor Shin Hyun-song warned that high-leverage investing increases market volatility. "Excessive leverage investment not only greatly affects personal profit and loss during price adjustments but can also expand market volatility," Shin said.

Financial authorities have activated emergency management protocols to address the rapid growth of these debts. The goal is to prevent a cycle where falling asset prices trigger forced liquidations, further driving down market values.

“Hana Bank has set a maximum new loan amount of 100 million KRW, regardless of the borrower's annual income.”

The South Korean government is prioritizing financial stability over market liquidity. By capping credit loans and restricting digital applications, regulators are attempting to decouple the domestic stock market from the banking sector's credit risk. This move signals a shift toward aggressive deleveraging to prevent a potential systemic collapse if the current stock market boom reverses.