A customer applying for loan at a Hana Bank in Seoul on Tuesday. While household debt has hit a new record high, the speed of the increase has eased. [YONHAP]
Household debt rose 9.7 percent on year in the third quarter to 1,844.9 trillion won ($1.55 trillion), hitting a new record as Koreans continued to borrow to buy homes, data from the Bank of Korea showed Tuesday.
The speed of debt growth slowed for the first time since the third quarter of 2019 partly due to banks cutting back on unsecured lending to households. As banks were pressured by the government to curb household debt growth, they suspended or reduced some of their loan programs in the latter half of the year.
Household debt includes loans from banks, insurers and other private and public lenders as well as credit card debt. Mortgages are included.
On-year household debt growth rate has been on the rise for the last seven quarters.
In 2020, the rate went from 4.6 percent in the first quarter to 8 percent in the fourth quarter as people borrowed heavily to invest in shares and real estate. The country's base interest rate was taken to a record low 0.5 percent in May last year as the pandemic hit Korea.
Heavy borrowing trend continued through the second quarter this year when household debt grew by 10.4 percent on-year, the fastest since 10.4 percent recorded in the second quarter of 2017.
That pace slowed down a bit to 9.7 percent in the third quarter, though it is still fast.
Household's lending from financial institutions, which is most of household debt, grew by 10 percent on-year to 1,744.7 trillion won.
Mortgages, which include loans for jeonse long-term deposit-based rent, grew by 8.8 percent on-year to 969 trillion won.
The central bank said demand for loans to purchase or lease apartments continued to increase in the third quarter.
Loans other than mortgages, which are mostly unsecured loans, increased by 11.6 percent on year to 775.7 trillion won. That is a slowdown from the 12.8 percent growth in the second quarter.
Song Jae-chang, head of monetary and financial statistics team at the central bank, said during an online briefing held Tuesday that the growth of unsecured loans taken out by households slowed as banks tightened lending by various means, including lowering the lending cap on unsecured loans.
Household credit card debt grew by 4.2 percent on-year to 100.2 trillion won in the third quarter. That is a lot slower growth than the 10.1 percent growth recorded in the second quarter. Compared to the previous quarter, credit card debt actually fell by 0.2 percent.
"With the resurgence of the Covid-19, spending on face-to-face services declined," Song said.
As household debt continues to mount despite efforts by financial regulators, eyes are now on the monetary policy board meeting to be held Thursday. Central bank chief Lee Ju-yeol has already suggested another rate increase this year after the rate-setting meeting held in October.
Thursday's meeting will be the last monetary policy board meeting this year.
bank of korea household debt household credit