Korean household debt set to fall for first time in decades

Outstanding household bank debt at the end of 2022 will probably be down from the end of 2021, the first annual decline since the data were first compiled in 2004.

An electronic display board in Seoul promotes rates for savings and deposits on Sunday. [NEWS1]

Outstanding household bank debt at the end of 2022 will probably be down from the end of 2021, the first annual decline since the data were first compiled in 2004.

Outstanding household debt at Korea's five largest commercial banks – KB, Shinhan, Hana, Woori, NongHyup – was 693.65 trillion won ($531.4 billion) as of Dec. 15, down 15.4 trillion won from the end of last year, according to Yonhap on Sunday.

If the trend holds, the Dec. 31, 2022 figure will be lower than the Dec. 31, 2021.

The housing-related loan total grew 6.36 trillion won to 511.76 trillion won in the same period, while the unsecured loan total fell by 18.20 trillion won to 121.35 trillion won.

The Bank of Korea’s base rate was 3.25 percent in November, from 0.50 percent in July last year. Rates for loans increased accordingly, with the upper range for unsecured loans breaking 7 percent.

The Cost of Fund Index (Cofix), which is the reference rate for variable-rate mortgages, reached 4.34 percent in November, up 0.36 percentage points from a month earlier. It was the first time the Cofix broke 4 percent the data were first compiled in January 2010.

The rate for floating-rate mortgages from the five banks ranged between 5.19 percent and 7.72 percent as of Friday.

The banks have not yet submitted their proposals for 2023 lending. Usually, regulators require banks to hand in their plans on debt management in early December for the following year. The authorities will sometimes comment on their plans and ask for adjustments.

Last year, banks had to hand in the plan as early as in November. They were told to keep household debt growth at four to five percent in 2022.

While household debt declined, corporate debt jumped by 73.65 trillion won in the same period as it became more difficult to sell bonds.

The yield for AAA-rated Korea Electric Power Corporation (Kepco) paper was 4.873 percent on Friday compared to 2.14 percent at the end of last year. The yield was as high as 5.825 percent in October.

BY JIN MIN-JI [jin.minji@joongang.co.kr]