Korean household debt falls for the first time H1, interests shoot up by $18 bn in 10 mos

[Photo by MK DB]

South Korea¡¯s household borrowing contracted 800 billion won ($611 million) in the first half of the year, its first dip in eight years, as interest burden ballooned as much as 24 trillion won in just 10 months from the most aggressive tightening to date against runaway inflation.

The Financial Services Commission on Tuesday found an 800 billion won retreat in household loans by June from a year-ago period, the first on-year fall since it began following the data in 2015.

The phenomenon sharply contrasts with the jump of 75.8 trillion won in the second half of 2020 when the Bank of Korea (BOK) cut the base interest rate to a record low of 0.5 percent in May.

For the full 2021, household loans stretched to 107.5 trillion won.

[Source: Financial Services Commission]

The trend dramatically reversed after the BOK raised the benchmark rate at an unprecedentedly rapid pace in line with galloping inflation. Out of five rate-setting sessions so far this year, the base rate has been raised four times with the latest increase made on Wednesday, delivering the first-ever hike by 50 basis points. As a result, the key rate was yanked up to 2.25 percent from 0.5 percent in May last year.

The jump in interest rate would hoist up the consumer debt financing burden by 6.4 trillion won, based on the debt figure in September last year. This translates as an increase of 322,000 won in annual interest on loans per borrower. As the central bank hiked the key rate by 1.75 basis points over 10 months, the interest payment burden has grown by 1.12 million won per borrower, or 24 trillion won in total. As of March, household debt reached 1,752.7 trillion won.

In June, household borrowing gained 700 billion won from the previous month. Home mortgage loans rose by 2.8 trillion won last month, while credit and other loans dropped by 2.1 trillion won.

Credit loans dropped sharply due to high borrowing costs. The interest rate on new credit loans in May averaged 5.78 percent, up 2.09 percentage points from a year earlier, according to the BOK.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]