Korea's household debt down for first time in 20 yrs amid rate hikes

[Photo by MK DB]

South Korea’s household debts contracted for the first time in two decades in the first three months of this year after people restrained from borrowing money due to higher interest rates coupled with financial regulator’s stricter debt management efforts and softer demand for house purchases.

According to the Bank of Korea on Tuesday, the outstanding loans extended by financial institutions to households stood at 1,752.7 trillion won ($1.4 trillion) as of the end of the January-April period, falling 1.5 trillion won from a quarter ago.

This was the first contraction since related data started being compiled in the fourth quarter of 2002.

Household lending by banks shrank 4.5 trillion won, and non-banks down 2.5 trillion won. Mortgage-backed loans gained 8.1 trillion won, but slower than the 12.7 trillion won addition in the previous quarter. Other loans including credit loans declined by 9.6 trillion won for the first time since data started being traced in 2003.

Outstanding household credit that includes credit purchases and loans also contracted to 1,859.4 trillion won, the first drop since the first quarter of 2013 after losing 600 billion won from record-high figures a quarter ago.

The BOK, however, remained cautious about whether households’ debts are on the declining track as household debt has already started stretching in April. Whether the trend would continue remains to be seen as lending rates are rising and housing transactions are expected to lose steam, the bank said.

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