South Korean households are increasingly turning to overdraft accounts ahead of the implementation of the third-stage debt service ratio (DSR) rule in July.

According to the country’s five major lenders on Monday, the combined balance of overdraft accounts stood at 39.3 trillion won ($29 billion) as of June 5, up 397.6 billion won from the end of May.

The five lenders are KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank Co.

An overdraft account is a type of credit loan that allows users to borrow up to a pre-approved limit based on their credit rating.

The balance had already increased by 350.1 billion won in April and 356 billion won in May.

In terms of balance, this is the highest level since December of last year when it peaked at 40.02 trillion won.

The balance rose by nearly 400 billion won in just three business days in June, signaling a rapid increase.

This surge appears to be driven by demand from consumers looking to open accounts before the toughed DSR regulations take effect.

“Under the current Phase 2 DSR stress framework, many customers are trying to secure the maximum limit available to them,” said an industry official.

The rise in overdraft balances is also influenced by the tightening of loans in the secondary financial sector.

Recently, major insurance companies have reduced loan limits on policy loans, and credit card companies have also strengthened internal screening for card loans, actively managing their loan portfolios.

These actions are likely preemptive measures to avoid being flagged by financial authorities for an increase in lending before Phase 3 DSR is enforced.

With home mortgage loans, unsecured loans, and overdraft accounts all increasing simultaneously, household debt is seeing an explosive growth trend.

The total household loans at the five major banks increased by 1.2 trillion won in just three business days in June, data showed.

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