KB Kookmin Bank, one of five major commercial banks here, has decided to cap the size of personal loans per household to 20 million won ($18,000), sources said Tuesday, marking a drastic move as local lenders have been tightening their grip on lending rules.

KB Kookmin plans to maintain the new limit at least until the end of the year, industry sources said. The rule applies to any household that would apply for a new personal loan or seek to increase their loan balance from Tuesday to Dec. 31. This follows its previous move to cap the size of personal loans extended offline at 100 million won until the end of the year.

The bank’s decision comes as part of a series of loan regulation measures local lenders have been announcing, after financial authorities warned them to better manage household credit, earlier this year.

South Korea’s household debt growth has been gaining notable momentum this year due to the heated housing market and the COVID-19 pandemic. The value of outstanding bank loans to local households gained 13.6 trillion won on-month in November alone, to stand at 982.1 trillion won, according to recent data from the Bank of Korea. This marked the largest monthly gain since the central bank started compiling such data in 2004.

Both traditional and internet-only banks have been cutting back credit limits and capping overdraft accounts -- a popular product among households and office workers here -- since last month.

Since mid-November, the five major banks have started lowering limits for their key overdraft account products designed for “high-income individuals and professionals” from an average 200 million won to about 100 million won.

KB Kookmin’s industry peer Shinhan Bank lowered its credit limit for such high-income individuals to 200 million won from the previous 300 million won, without saying when it plans to raise the limit again. Woori Bank has temporarily suspended extension of one of its most popular loan products for office workers as well.

Internet-only banks Kakao Bank and K bank have jumped on the bandwagon in recent days, further eliminating options for borrowers.

K bank on Monday raised its annual percentage rate for two of its most popular loan products – one for office workers and another for overdraft accounts – by 0.2 percentage point to 2.44 percent and 2.88 percent, respectively.

Kakao Bank, meanwhile, announced last week a temporary halt in the opening of overdraft accounts. It plans to stop accepting applications until Dec. 31.

On such loan regulations, experts have been expressing concerns that this would push households and borrowers toward riskier products offered by second- and third-tier financial institutions such as savings banks and private lenders.

“There is a need to handle the short-term surge in household debt, which could lead to long-term economic stagnation and low growth,” said Cho Young-mu, a researcher at LG Economic Research Institute.

“But the side effects of the government’s interference in the financial institutions’ risk management have been highlighted through the lack of loan extension to areas where money needs to be funneled,” he added.

By Jung Min-kyung (mkjung@heraldcorp.com)