South Korean credit loans rose by the most in about five years in May, led by increases in overdraft-style minus-account borrowing, as higher lending rates raise concerns over the interest burden for borrowers investing with debt. Market expectations of a policy rate hike have grown after Bank of Korea Governor Shin Hyun-song publicly cited the need to raise rates at an appropriate time. Bank bond yields that influence loan pricing have climbed, pushing credit loan rates above 6 percent.

As mortgage loan regulations expand, financing conditions for end users are tightening. Banks are increasingly turning borrowers away at the consultation stage, prompting some to cover shortfalls with credit loans. Demand has shifted to mutual finance lenders, but they are also restricting lending, while savings banks face tougher volume caps. Authorities have capped some savings banks’ household loan growth at 0 percent, raising concerns that borrowing is shifting from mortgages to higher-rate credit loans.