85% of South Korea's bank loan quota exhausted, stock market leverage funding faces cutoff, borrowing to trade stocks may be "put on hold"!

The credit space in the South Korean banking system is rapidly tightening, with the surge of leveraged funds entering the market facing enforced cooling measures.

South Korea's five major commercial banks have already consumed more than 85% of their annual household loan growth quota in the first half of this year, with two banks even exceeding the annual cap. Against the backdrop of strict total volume control targets set by regulators, banks have almost no room for new lending in the second half of the year. As a result, the market anticipates a "cliff" in credit supply will materialize in the latter half, causing stock market leverage funds accessed via lending to face significant contraction pressure.

The two main drivers behind the rapid loan growth are the persistently high demand for home mortgage loans and credit loans used directly to enter the market. Even though banks tightened lending at the beginning of the year, neither of these demands saw a significant decline, ultimately leading to a continued rise in loan balances during the first half.

For investors relying on credit leverage to participate in the stock market, available external financing channels for the second half of the year are facing a substantial contraction.

According to data released by the South Korean financial industry on July 12, as of the end of June, the total household loan balance (excluding policy loans) of the five major commercial banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank—reached 647.58 trillion KRW, an increase of 3.70 trillion KRW from the end of last year.

At the beginning of the year, South Korea's financial regulators issued total volume control targets for household loans to each financial institution, capping the annual growth rate at 1.5%, lower than last year's actual growth of 1.7%, aiming to curb the rapid expansion of household debt. Based on this target, the five major banks have a combined annual household loan growth limit of about 4.34 trillion KRW. Specifically: KB Kookmin Bank 909.2 billion KRW, Shinhan Bank 850 billion KRW, Hana Bank 880.5 billion KRW, Woori Bank 826.6 billion KRW, and NH Nonghyup Bank 870 billion KRW.

However, the actual increase of 3.70 trillion KRW in the first half alone equals 85.3% of the annual cap. The remaining quota for the rest of the year is only about 639.5 billion KRW, which, when spread over the six remaining months, is extremely limited.

More urgently, among the five major banks, two had already surpassed their annual target caps before the end of the first half. This means these two banks not only cannot issue new loans in the second half but must also encourage repayment of existing loans to bring balances back in line with compliance levels.

The market expects that, as banks are forced to tighten new credit issuance and prioritize loan recovery, a pronounced "loan cliff" effect will occur in the second half. For investors who have already or are planning to enter the market through credit loans, this means a substantial contraction in financing channels.

One of the key drivers behind the rapid growth of household loans in this cycle is that some of the loan funds have flowed into the stock market. The demand for mortgage loans remains high, and credit loans aimed at stock investment are also expanding concurrently, with both forces together propelling loan balances higher in the first half.

As bank credit quotas are nearly exhausted, the sustainability of this capital inflow is being directly challenged. If banks generally tighten lending in the second half, the resulting marginal tightening of market liquidity will gradually impact the stock market, and the potential for additional leveraged funds will be significantly constrained.