Households benefit from cheap loans

Interest rates on new household loans extended by Korean lenders fell to the lowest level in 10 months in December, as banks cut back on loans to people with bad credit histories, the central bank said yesterday.

Mounting household debts are seen as adding downside pressure to the domestic economy this year, as heavy indebtedness could squeeze private consumption, a key growth engine for the country.

The average rate for new loans extended to households stood at 5.37 percent in December, down 0.23 percentage point from the previous month, according to the Bank of Korea (BOK). It marked the lowest level since last February, when the rate hit 5.26 percent.

The central bank said borrowing costs for household credit loans fell last month from November, mainly because lenders reduced loans to customers with bad credit as part of their efforts to tighten risk management.

“As part of this management effort, banks gave out more credit to clients with a sound credit history while reducing loans to people with bad credit, which helped pushed down interest rates,” said Moon So-sang, an economist at the BOK.

The average rate for overall household credit loans came in at 6.07 percent last month, down 0.69 percentage point from November.

The average rate for fresh lending to both households and companies also declined 0.14 percentage point on-month to 5.69 percent, the BOK said.

The central bank held the key interest rate steady at 3.25 percent for the seventh straight month in January, citing increasing external economic risks.

Yonhap