Korean household debt declines for first time in 19 years

Apartment complexes in Korea [YONHAP]

Average debt per household in Korea contracted for the first time in 19 years to 86.5 million won ($66,000) in 2022 amid rising rates and the increase in the number of households, central bank data showed Monday.

Loans outstanding per person continued to increase, rising to 36.16 million won, as the country’s population began to decline after peaking in 2020.

According to data from the Bank of Korea on Monday, the outstanding balance of household credit stood at 1,867 trillion won at the end of 2022, up 0.2 percent from a year earlier.

Household credit covers credit purchases and loans to households by financial institutions, including banks and insurance companies.

The number of households was 21.58 million in 2022, Statistics Korea data showed. The debt per household — total outstanding household debt divided by the number of households — stood at 86.52 million won at the end of last year, down 1.17 percent from a year earlier.

It is the first time the figure declined since retreating 0.56 percent in 2003. The central bank has been compiling the data since 2002.

Korea's debt per household has been growing, with the figure crossing the 40-million-won mark in 2007, the 50-million-won mark in 2011, the 70-million-won mark in 2015 and 80-million-won mark in 2020.

The decline was credited to the decreased size of aggregate household loans due to the central bank’s series of interest rate hikes, contributing to a slump in the real estate market.

Household loans fell 0.46 percent to 1,749 trillion won as of the end of 2022 from a year earlier, while the number of households nationwide rose 1.4 percent to 21.58 million in 2022 from the previous year — backed up by the increasing number of single-person households.

Compared to the growth in the number of households, the growth in household credit is slower, resulting in a decrease in the debt per household.

Personal loans increased 0.4 percent to 36.16 million won as of the end of 2022. Korea’s population fell to 51.74 million in 2021 and 51.63 million in 2022 after peaking at 51.84 million in 2020.

It is likely that this year’s household debt will decline again given that loan demand has weakened due to recent rate hikes and a sluggish housing market.

According to central bank data on financial market trends, the outstanding balance of household loans by depository banks stood at 1,053.4 trillion won as of the end of January, down 0.44 percent on-month.

Household loans retreated from September to November, while that reversed in December.

Data compiled by the Financial Services Commission and the Financial Supervisory Service showed that household loans issued by financial institutions, including both depository banks and non-banking institutions such as savings banks, decreased by 8 trillion won in January.

The central bank sees deleveraging of household debt as a necessary process through interest hikes in the mid- to long-term.

“Household debt is a significant mid- to long-term risk factor, so Korea needs to deleverage now,” the Gov. Rhee Chang-yong said in a press meeting on Dec. 20.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]