Korean banks’ loans contracted in December as banks guarded capital ratios

SME loans fell as banks slowed down lending for their capital adequacy ratios.

South Korean banks lending to both households and the corporate sector declined in December 2025 as mortgage loans declined.

Bank households loans contracted by KRW2.2t in December, according to data from the Bank of Korea (BOK). Weaker demand for jeonse deposit loans and banks’ tighter year-end lending led to the decline.

Jeonse refers to the key money deposit system in South Korea where renters pay a large lump-sum deposit to the landlord at the start of the contract, according to Korean Economics Now. The landlord is expected to return the full deposit at the end of the lease.

Other loans also declined substantially due to slowing stock investments both at home and abroad, and due to year-end sales and write-offs of non-performing loans, the BOK said.

Bank lending to the corporate sector also declined in December, logging a KRW11.5 trillion contraction during the month compared to November.

Bank lending to large corporations decreased by KRW2t, mainly in working capital. The BOK blamed this on temporary repayments of loans through overdraft accounts by corporations for the purpose of financial ratio management

Loans to Small and medium-sized enterprises (SMEs) also fell by KRW6.3t as major banks slowed down lending activities for their capital adequacy ratios.