Korea’s household credit hits record high on surging mortgage balances

Posted on : 2023-11-22 16:45 KST Modified on : 2023-11-22 16:45 KST
Provisional data published by the Bank of Korea showed outstanding household credit reaching 1.8756 quadrillion won as of the end of September
Seo Jeong-seok, the head of the monetary and financial statistics team at the Bank of Korea, explains the key characteristics of the third and fourth quarter household credit figures (preliminary) for the year at the Bank of Korea in Jung District, Seoul, on Nov. 21. (Yonhap)
Seo Jeong-seok, the head of the monetary and financial statistics team at the Bank of Korea, explains the key characteristics of the third and fourth quarter household credit figures (preliminary) for the year at the Bank of Korea in Jung District, Seoul, on Nov. 21. (Yonhap)

South Korea’s total household credit (debt) balance reached its second record high in a year amid a large increase in housing-related loans in the financial sector during the third quarter of 2023 (July to September).

As the recovery in housing transactions has been accompanied by a sharp increase in mortgage loans, credit-based household consumption has bounced back and shown an increase after its previous decline.

According to provisional data on third-quarter household credit announced by the Bank of Korea on Tuesday, outstanding household credit as of the end of September stood at 1.8756 quadrillion won (around US$1.45 trillion), up by 14.3 trillion won from the end of the previous quarter.

The latest figures set a new record as they beat the previous all-time high of 1.8711 quadrillion won recorded in late September 2022.

After declining between the final quarter of 2022 and the first quarter of 2023, household credit showed an increase of 8.2 trillion won in the second year of this year. The latest numbers showed that number growing even larger during the third quarter.

The term “household credit” is a comprehensive category of household debt that combines loans from banks and other financial institutions with merchandise credit, including pre-payment credit card usage.

Household loans, and mortgages in particular, have been driving forces behind the rise in overall household credit. Over the three-month period, the household loan balance increased by 11.7 trillion won to reach 1.7591 quadrillion won — well exceeding the previous historic high of 1.7571 quadrillion won reached in the second quarter of last year.

The mortgage balance in particular stood at 1.0491 quadrillion won during the third quarter, representing a rise of 17.3 trillion won. This number too eclipsed the previous record from three months earlier.

In contrast, the balance of “other loans,” which includes credit loans, was down by 5.5 trillion won to a total of 710 trillion won.

“As an increase in housing transactions since the second quarter led to a rise in household demand for funds to purchase residences, the increase in household loans has grown as policy-based mortgages such as special ‘bogeumjari’ loans have combined with individual mortgages provided by banks,” explained Seo Jeong-seok, director of the central bank’s monetary and financial statistics team.

A breakdown of third-quarter household loans by institution showed the depository corporation loan balance growing by 10 trillion won to reach 904.5 trillion won, while the balance for non-bank depository institutions such as mutual credit institutions fell by 4.8 trillion won to a balance of 323.7 trillion won.

Indeed, the loan balance for non-bank depository institutions has been falling for five straight quarters since the second quarter of 2022. According to the Bank of Korea, the biggest factors behind this decline have been stronger soundness management for savings banks and the Korean Federation of Community Credit Cooperatives (MG Community Credit Cooperatives) and a reduction in non-housing collateral loans, such as those for commercial structures.

At 116.6 trillion won, the merchandise credit balance as of the end of the third quarter was up by 2.6 trillion won from the end of the previous quarter. After reaching 117.7 trillion won in the fourth quarter of last year, the merchandise credit balance fell by around 3.8 trillion won by the end of the second quarter of 2023 before rebounding.

Seo said this “appeared to reflect the effects of increased credit card usage since the third quarter, including rising travel and leisure demand.”

Indeed, personal credit card use in the third quarter totaled 186.9 trillion won, exceeding the 175.6 trillion won recorded in the first quarter and 182.3 trillion won recorded in the second.

By Park Soon-bin, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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