Household borrowing at South Korea's major commercial banks fell for the first time in six months in September, as strict self-imposed lending restrictions by financial institutions curbed credit expansion, Yonhap News Agency reports.

This deliberate tightening highlights South Korea's ongoing struggle with record levels of domestic private debt, a systemic risk that threatens to undermine consumer spending and broader economic stability if left unaddressed by regulators.

Aggregate outstanding retail debt across the five principal lenders—KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH NongHyup Bank—contracted to KRW781.39 trillion ($581bn), according to bank data compiled on September 6. The figure represents a KRW727.6bn drop compared to end-August, marking the first monthly decline since March.

Mortgage balances led the downturn, slipping to KRW620.5 trillion from KRW621.2 trillion at the end of August. The reduction comes even as financial authorities raised annual household loan growth targets for the five lenders from KRW4.3 trillion in 2025 to KRW7.1 trillion this year, showing that voluntary bank limits are actively choking off government-permitted capacity.

However, banking executives expect the slowdown to be short-lived once collective property financing resumes. Excluding state-backed policy loans, baseline retail credit maintained an underlying upward trajectory, growing by KRW108.7bn over the period.