Household credit shrinks at sharpest pace in Q4 amid high borrowing costs

Korea's household credit shrank at the sharpest pace in the fourth quarter of 2022 amid high interest rates driven by the central bank's monetary tightening to bring down inflation, data showed Tuesday.

Outstanding household loans reached 1,867.0 trillion won ($1.44 trillion) at the end of December, down 4.1 trillion won from three months earlier, according to the preliminary data from the Bank of Korea (BOK).

It was the sharpest decline, breaking the previous record posted in the first quarter of 2009, when household credit contracted by 3.1 trillion won.

It was also the first time that the figure has declined from a quarter earlier in about 10 years.

On a year-on-year basis, outstanding household credit expanded by 4.1 trillion won, which was the smallest on-year increase since the fourth quarter of 2003, when it expanded by 7.3 trillion won.

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

The decline was due to high borrowing costs, driven by the BOK's series of interest-rate hikes over 1 1/2 years 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. It will hold a rate-setting meeting on Thursday.

Of the total credit, household loans stood at 1,749.3 trillion won at the end of December, down 7.5 trillion won from three months earlier.

Yonhap