Kores’s new household loans reach $76.75 bn on high interest rates

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With expectations growing that interest rate hikes will soon come to a halt and property prices will rebound, demand for new loans in South Korea is rapidly increasing, raising concerns once again.

New household loans from the country’s major commercial banks reached a staggering total of 100 trillion won ($76.75 billion) in the first half of this year.

According to the financial industry on Sunday, the five largest banks in the country - KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and NH NongHyup Bank - disbursed a total of 95.16 trillion won in new household loans in the first half of this year alone. This represents a substantial increase of 55.9 percent compared with a year earlier, which recorded 61 trillion won in loans.

Particularly, home-backed loans saw a significant surge. Fresh mortgage loans disbursed by the five major banks in the first half of this year amounted for 84 trillion won, marking a remarkable increase of 60.4 percent from a year ago. During the same period, new personal credit loans increased by 28.9 percent, rising from 8.66 trillion won to 11.16 trillion won.

The new household loan volume from the five major banks reached a record high of 19.27 trillion won last month. The month-on-month growth rate of new household loans stood at 12.3 percent, nearly three times higher than 4.2 percent in June last year.

In June, the new home-backed loan was 16.74 trillion won, similar to the level observed in March at 16.77 trillion won. March is traditionally a month with high demand for loans related to housing relocations, and with market interest rates declining and interbank rate competition intensifying, the home-backed loan rate fell to the 3 percent range. However, in June, the home-backed loan rate rose to the 4 percent range again.

New credit loans also show a clear upward trend. In June, the five major banks handled 2.53 trillion won in new credit loans, surpassing the 2 trillion won recorded in May. While the monthly new credit loan amount in the first half of last year remained relatively stable at 1.3 trillion won to 1.5 trillion won, it has consistently increased this year, with January at 1.3 trillion won, February at 1.63 trillion won, and March at 1.86 trillion won. Moreover, in May and June, it exceeded 2 trillion won for two consecutive months.

Analysts speculate whether the upward trend in household loans from commercial banks will continue in the second half, depending on the state of the housing market. Currently, real estate experts are divided between predictions of a rebound in property prices and expectations of further decline.

If the prevailing trend is towards rising property prices, with increased buying interest, home-backed loans may expand, deviating from deleveraging efforts. Additionally, with landlords needing to return security deposits to tenants due to declining lease prices, there is a high possibility of increased demand for new loans from banks.

The amount of new loans for returning security deposits from the four major banks was in the range of 300 billion won per month in the second half of last year. However, since the beginning of this year, it has risen to 420 billion won in January, 620 billion won in February and 570 billion won in March.