Korean household debt declines on quarter for first time since 2013

Household debt rose 5.4 percent on year in the first quarter to 1,859.4 trillion won ($1.47 trillion), the Bank of Korea reported.

On quarter, the total dropped by 600 billion won. It was the first quarterly decline since the first quarter of 2013.

Household debt is borrowings by households from financial institutions, including banks and loan sharks, plus credit card debt. Mortgages are included.

Rising interest rates and tightening rules on lending contributed to the decrease. Average rates on household loans were 3.98 percent in March, the highest since the rate reached 4.02 percent in May 2014.

The ratio of household debt to nominal GDP rose to 106.1 percent at the end of last year from 83.8 percent at the end of 2017.

This was due to excessive liquidity unleashed following the start of the pandemic and as individuals sought loans to invest in real estate, stocks and cryptocurrencies.

Rising interest rates will reduce consumption and lending. With so much debt outstanding, the economy may easily be affected by external shocks such as a global economic slowdown.

According to central bank data, interest payments for each person increase by 161,000 won for every 0.25 percentage point increase in interest rates based on a calculation made using household lending data last September.

The bank raised its base interest rate by 0.25 percentage points four times since last August, taking it up 1 percentage point in total. According to analyst forecasts, the bank will increase the rate by another 0.25 percentage points at the monetary policy board meeting on Thursday.

BY AHN HYO-SEONG [cho.jungwoo1@joongang.co.kr]