Bank of Korea Monetary and Credit Policy Report "Real Estate Loans Increase... Private Loans Up 13%"

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[Asia Economy Reporter Jang Sehee] It has been revealed that loans have increased mainly in the real estate sector, which has a low production inducement effect. This is analyzed to be due to the fact that, as economic uncertainty has increased, loans for working capital have risen significantly more than loans for facility funds.

On the 12th, the Bank of Korea stated in the 'March 2020 Monetary and Credit Policy Report' that, regarding the recent characteristics and implications of credit growth, household credit largely consists of housing-related loans. However, it analyzed that the transmission path from household credit growth → housing price increase → consumption increase is uncertain.

The Bank of Korea analyzed, "While there is a clear mutual causal relationship between household credit and housing prices, the wealth effect resulting from housing price increases has low statistical significance."

It also analyzed that the recent rise in the private credit ratio is very rapid compared to the past and major countries. Since 2018, the increase in the private credit ratio has been 13.1 percentage points, greatly exceeding the rise over eight years after the financial crisis. Among the 52 countries surveyed by the International Institute of Finance (IIF), it is the second highest level after Sweden.

The Bank of Korea stated that while the household credit ratio has continued a steady upward trend, the corporate credit ratio, which had generally remained stable, has recently risen rapidly.

The Bank of Korea explained that the private credit cycle phase has been in an expansion phase since the 14th quarter of 2018. In particular, this expansion phase is the fourth since the 2000s, and the increase in the private loan ratio is not insignificant compared to previous expansion phases.

The report further stated, "The increase in loans acts as a factor easing financial conditions through the expansion of market liquidity, but the positive effects on the real economy are estimated to have weakened compared to before." It emphasized, "Micro-level policy efforts are needed to guide market funds to flow smoothly into productive sectors."

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