Household credit growth slows in Q4 of 2023 on cooling real estate market

Korea’s household credit growth slowed in the fourth quarter of last year as the real estate market remained weak amid high borrowing costs.

Korea’s household credit stood at a record 1,886.4 trillion won ($1.41 trillion) at the end of December, up 8 trillion won or 0.4 percent from the previous quarter, according to preliminary data by the Bank of Korea released on Tuesday. A banner promotes mortgage products in front of a bank in Seoul. [YONHAP]

Korea’s household credit growth slowed in the fourth quarter of last year as the real estate market remained weak amid high borrowing costs.

Outstanding household credit stood at 1,886.4 trillion won ($1.41 trillion) at the end of December, up 8 trillion won from the previous quarter, according to preliminary data by the Bank of Korea (BOK) released on Tuesday.

The quarterly growth slowed from an increase of 17 trillion won in the third quarter. The figure was up 1 percent from a year earlier, lower than the average annual growth of 6.8 percent over the past decade from 2013 through 2022.

Household credit refers to credit purchases and loans to households by financial institutions including banks and insurance firms.

Outstanding household loans reached a record high of 1,768.3 trillion won, up 6.5 trillion won, from the three preceding months while household credit stood at 118.1 trillion won, up 1.5 trillion won, in the same period.

Mortgage loans increased by 15.2 trillion won in the fourth quarter, slowing from a record high of 17.4 trillion won in the previous quarter.

The growth contracted due to a slowdown in the housing supply through policy mortgage programs, according to the BOK.

However, a newly-introduced low-rate loan program for households with newborns that was launched late last month is expected to stimulate people’s sentiment to purchase houses, thereby potentially raising household loans.

The welfare program, aimed at boosting the country’s low birthrate, offers mortgages with interest rates as low as 1.60 percent.

“Korea’s [household credit] is being stably managed, as seen by an expected decrease of household debt-to-gross domestic product (GDP) ratio for two consecutive years,” said Financial Services Commission Vice Chairman Kim So-young on Tuesday.

The ratio is estimated to reach 100.8 percent in 2023, down from 104.5 percent in 2022 and 105.4 percent in 2021, according to the BOK data, although Korea's ratio remains one of the highest level among major economies.

Kim expressed concerns about a potential increase in household loans amid growing expectations for rate drops in major economies and intensified competition among financial companies, which could lead to the offering of lower borrowing rates.

Household loans continued to increase despite persistently high borrowing costs due to a restrictive monetary policy aimed to curb inflation.

The central bank has kept the target interest rate steady at 3.5 percent for more than a year since it was raised to that level last January.

The BOK board is expected to keep the rate unchanged in the upcoming rate-setting meeting scheduled on Thursday.

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