Korea’s household debt up $4.2 bn in July led by mortgage loans

Bank officials provide customers with consultations on household loans at a bank in Seoul. [Photo by Kim Ho-young]

Household borrowing is on a rise in South Korea after a brief pause due to a sharp rise in interest rates, raising concerns about worsening consumption that may dampen economic growth.

According to preliminary data released by the Financial Services Commission (FSC) on Wednesday, household loans across all financial sectors rose by 5.4 trillion won ($4.2 billion) in July from a month ago.

Domestic household debt has been on a rise for a fourth straight month since April.

Household loans extended by local lenders and secondary financial institutions fell by 8.1 trillion won in January from a month ago and continued to go down until March.

The fall came as households started deleveraging in response to the sharp rise in market interest rates. The pace of household loan growth, however, has been on a gradual increase since April when loans increased by 200 billion won from the previous month.

Household loans extended by the entire financial sector in Korea totaled 1,739.5 trillion won at the end of March based on final figures.

The total amount of loans is estimated to have exceeded 1,750 trillion won at the end of July based on preliminary figures, the highest level since 1,756.8 trillion won at the end of September last year.

“We will closely monitor the growth of household loans and if necessary take preemptive measures to stabilize loans in the second half of the year,” said a financial authority official.

The FSC plans to hold a meeting on Thursday to examine household debt with relevant institutions, chaired by Lee Se-hoon, secretary general of the FSC. Attendees will include representatives from the Ministry of Economy and Finance, the Ministry of Land, Infrastructure, and Transport, the Financial Supervisory Service, and the Bank of Korea.

Household mortgage loans, in the meantime, have been driving the surge in overall household loans.

Mortgage loans fell by 600 billion won on month in February but they have been on a rise since March. The extended amount increased by 18.4 trillion won between March and July.

Industry insiders note that the rise also comes as online-only banks are more actively engaged in offering mortgage loans as part of a move to diversify their portfolio to manage delinquency rates.

Credit loans and other loans have continued to decline this year, although by a slower pace than in January.

“Household loans across all financial sectors have been increasing since April as housing transaction volumes have recovered recently,” said an official from the BOK. “Credit loans, including overdrawn accounts, have also been significantly reduced as customer deposits have flocked to the stock market.”