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Household debt growth eases over tightened loan measures

Published: 12 Oct. 2023, 16:42 Updated: 12 Oct. 2023, 17:38

JIN MIN-JI
[email protected]

Banners promoting loan products are on display in front of a bank in Seoul on Oct. 3 [YONHAP]

Korea’s household debt growth slowed in September, rising 2.4 trillion won ($1.8 billion) from a month earlier, amid stricter loan measures by the financial authorities, showed Financial Services Commission (FSC) data on Thursday.

The growth was led by the mortgage sector, which accelerated 5.7 trillion won over the period, slightly lower than the 6.6 trillion won of growth in August. Household borrowing excluding mortgages fell 3.3 trillion won, a sharp drop from a 500 billion won decline in August.

The borrowing marked the first slowdown in growth since household debt began to rise in April.

Household borrowing extended by banks slowed and the degree of decline in household loans extended by the secondary market expanded.

Household loans extended by banks grew 4.9 trillion won in September to 1,079.8 trillion won, slowing from 6.9 trillion won a month earlier. Household loans extended by the secondary market fell 2.5 trillion won over the period compared to a decline of 800 billon won a month earlier.

“Though the growth of household debt shrunk in September, the size of household debt remains high,” said the FSC in a statement. The FSC will “continuously monitor the situation considering that the growth rate may rise back due to a demand to move in autumn during October and the base effect of a fall in credit loan.”

The FSC stressed that it will manage household loans to be centered on end users.

“It is evident the household debt-[to-gross domestic product (GDP)] ratio is high,” said the FSC Chairman Kim Joo-hyun during a parliamentary inspection on Wednesday. But household debt is “moving in a situation where it is manageable.”

Kim added the authorities will regulate household debt while simultaneously supporting vulnerable social groups to be able to purchase a house priced 600 million won or lower.

Korea’s household debt-to-GDP ratio stood at 108.1 percent last year, up more than 16 percentage points from 2017, according to the data by the International Monetary Fund. The figure fell to 102.2 percent at the end of the first quarter, according to the Institute of International Finance.

Financial regulators announced a set of measures last month against the rapid growth of household debt. The FSC tightened rules on mortgage lending with a 50-year maturity, which started to be offered this year, and announced it will strengthen monitoring of the types of borrowers that are allowed to receive the mortgage.

The effects of the regulation are projected to be realized starting in October, according to the Bank of Korea on Thursday.

Household debt has traditionally expanded in October and November from September and showed a tendency to shrink in December.

BY JIN MIN-JI [[email protected]]