Personal debt rises again, but at a slower pace

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Personal debt rises again, but at a slower pace

Overall debt owed by Korean households continued to rise at a steady pace in the first half, but the rate of increase slowed significantly from a year earlier amid government efforts to curb real estate speculation, a central bank report said Monday.

As of end-June, the country’s outstanding household credit came to 1,556.1 trillion won ($1.34 trillion), up 19.4 trillion won from six months earlier, according to the report from the Bank of Korea (BOK).

The rise compares with a 41.7 trillion-won spike posted in the first half of 2018.

The increase in the first half also marks a sharp slowdown from a 44.4 trillion-won increase in the second half of last year.

“In the first half of 2019, the rise in home-backed loans accelerated on a steady demand for housing loans sparked by a rise in the number of households moving into new apartments in the capital area, but the rise in overall household debt slowed from the first half last year as the rise in other household debt slowed due to the introduction of the debt service ratio [DSR],” the report said.

The DSR limits the amount of fresh loans one can take out based on one’s annual income. Household credit reflects overall household borrowing as it includes credit spending in addition to household debt.

As of end-June, outstanding credit spending came to 89 trillion won, down 1.1 trillion won from six months earlier.

The slowdown in the rise of household debt apparently followed a series of government measures to curb real estate speculation on one hand, while hoping to boost spending and investment on the other.

The country’s economy contracted 0.4 percent from three months earlier in the first quarter, marking the slowest growth in a decade.

In the first half, the local economy expanded 1.9 percent from the same period last year, far short of the 2.6 percent annual growth estimate predicted by the BOK at the start of the year. The central bank has since revised down its growth outlook to 2.5 percent in April and to 2.2 percent in July.

The rise in household debt, however, is widely expected to have picked up its pace in the second half of the year as the central bank began slashing its base interest rate in July to help boost the country’s economic growth.

In its first rate cut in three years, the central bank reduced its policy rate to 1.50 percent in July, then again to 1.25 percent last month, matching its all-time low previously seen in 2016.

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