Legitimate borrowers with not be turned down for joense loans, according to Financial Services Commission Chairman Koh Seung-beom.
It's only going to get tougher for households to borrow from banks as the year wears on.
Loans to small and medium sized enterprises are on the rise as banks are forced to clamp down on household loans.
People walk past loan advertisements displayed on the wall of a bank in Seoul.
Borrowing money from banks has become difficult as the FSC has asked banks to tighten regulations to reduce household debt. Starting Wednesday, KB Kookmin Bank stopped issuing new mortgage credit insurance and mortgage credit guarantees.
The government and ruling Democratic Party on Wednesday decided to extend the suspension of debt repayments for another six months to ease the burden on small shop owners.
Total bank loans to households continued to rise in August, although the rate of increase has fallen compared to previous months as the government pushed banks to reduce lending.
Loans extended by insurance companies in South Korea rose 8 percent on-year in the second quarter, led by gains in home-backed lending and corporate loans, the financial watchdog said Tuesday.
Interest rates have been on a continuous rise throughout the year, and borrowers may have to brace themselves for higher costs of borrowing and tighter loan regulations. Another possible rate hike could also come by the Bank of Korea (BOK).
Borrowers are turning to foreign and provincial banks after the big banks capped unsecured loans to the level of a borrower's annual income.