Korea's household credit hits record high in Q3

Korea's household credit hit a record high in Q3, driven by mortgage and credit card spending, despite high interest rates.

A banner outside a bank in Seoul shows information about its loan programs on Oct. 3 in 2021. [YONHAP]

Korea’s household credit rose at a record-high pace in the third quarter, boosted by a jump in mortgage and credit card spending, central bank data showed Tuesday.

Outstanding household credit reached 1,875.6 trillion won ($1.46 trillion) at the end of September, up 14.3 trillion won from three months earlier, according to preliminary data from the Bank of Korea (BOK).

The third-quarter rise marks a record-high gain, despite consistently high interest rates.

Household credit refers to credit purchases and loans to households by financial institutions.

Household debt has been a major concern for policymakers as the household debt-to-gross domestic product (GDP) ratio remains above 100 percent. Korea's ratio stood at 102.2 percent in the first quarter, followed by Hong Kong with a ratio of 95.1 percent and Thailand with 85.7 percent.

“The overall household credit grew as mortgage expanded on a recovering housing market,” said Seo Jung-seok, head of BOK's Monetary & Financial Statistics team in a press conference on Tuesday.

He added that a rise in credit sales, which jumped 2.6 trillion won from the April-June period compared to a 500 billion won quarterly decline in the previous quarter, also contributed to the record household credit.

Credit card spending expanded on a jump in demand for travel and leisure activities, said the BOK.

The rise in household loans came despite high borrowing costs, driven by the BOK's interest rate hikes to bring inflation under control.

In January, the BOK raised its key interest rate by a quarter of a percentage point to 3.5 percent, the seventh consecutive increase since April last year.

But since then, the central bank has kept the rate unchanged amid slowing inflation and economic growth.

Household loans stood at a record high of 1,759.1 trillion won at the end of September, up a record 11.7 trillion won from three months earlier.

Mortgage loans increased by a record high of 17.4 trillion won in the third quarter from three months ago, and other types of household loans also increased 2.6 trillion won over the cited period.

“As people take the wait-and-see approach for the housing market amid a recent rise in the interest rate, future household credit is also expected to be affected,” said Seo. “Impacts of the government’s grip on the household debt are expected to materialize with some time difference.”

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