Panic Buying and Donghak Ants Effect Lead to Surge in Credit Loans

July Personal Credit Loan Balance 120 Trillion
Up 2.28% from Previous Month, Rising for Two Consecutive Months
Low Interest Rate Burden Eases Funding Difficulties
Mortgage Loans Stall Due to Successive Real Estate Measures

[Asia Economy Reporters Hyojin Kim and Minyoung Kim] Credit loans at major domestic banks have significantly increased for two consecutive months. In contrast, the growth rate of mortgage loans (jumdae) has slowed down. This is interpreted as a result of the combined effects of the government's stringent real estate measures causing a balloon effect and the low interest rate environment. It is also suggested that 'panic buying' driven by soaring house prices and the 'Donghak Ant Movement,' where people borrow money to invest in stocks, have led to the rise in credit loans.

According to the financial sector on the 4th, the total balance of personal credit loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 120.2042 trillion KRW at the end of last month, an increase of 2.681 trillion KRW (2.28%) compared to the end of June. This is the second-largest increase following June's 2.8374 trillion KRW (2.47%), which was the largest increase this year. Personal credit loans at the five major banks have continued to rise except in January. The growth temporarily slowed only in April (49.75 billion KRW).

Apartment complex in Seoul city. Photo by Yonhap News Agency

Mortgage Loan Growth Rate 'Minimal'

The growth rate of mortgage loans remains relatively minimal. At the end of last month, the total mortgage loan balance at the five major banks was 452.823 trillion KRW, an increase of only 1.3671 trillion KRW (0.30%) compared to the end of June. Although this increase is slightly higher than June's 846.1 billion KRW (0.19%), it is still low compared to March, April, and May. This year, the mortgage loan growth rate at the five major banks has mostly remained in the 0% range except for March and April. The average growth rate for mortgage loans from January to July is 0.48%, while the average growth rate for personal credit loans is 1.29%.

This trend is largely attributed to the government's series of real estate policies introduced over the past six months. Starting in December last year, the government reduced the loan-to-value ratio (LTV) for high-priced homes exceeding 900 million KRW and banned mortgage loans altogether for homes priced over 1.5 billion KRW. These measures, aimed at curbing apartment-centered real estate speculation, were followed by various policies to stabilize housing prices.

A bank official stated, "Considering the recent policies such as stricter verification of actual residence and a complete ban on mortgage loans for rental business operators, the trend of suppressing mortgage loans is expected to continue."

While mortgage loans have contracted, the realization of 'ultra-low interest rates' due to consecutive cuts in the base interest rate has increased demand for personal credit loans. According to the weighted average interest rate of financial institutions compiled by the Bank of Korea in June, the interest rate on household loans fell by 0.14 percentage points to 2.67%, marking an all-time low. Among these, general credit loans (3.33% → 2.93%) entered the 2% range for the first time ever.

Credit Loan Interest Rates in the 2% Range Stimulate Loan Demand

Last month, the average interest rates for general credit loans at KB Kookmin Bank, Shinhan Bank, and Hana Bank were 2.63%, 2.38%, and 2.89%, respectively. Woori and NH Nonghyup Banks recorded 2.49% and 2.55%, respectively. During the same period, the average interest rates for overdraft loans at these banks ranged from a low of 2.46% to a high of 2.97%.

A bank official explained, "Compared to before, many cases where funds that would have been raised through mortgage loans are now being covered by credit loans seem to have increased," adding, "The increase in reliance on credit loans is also influenced by financial difficulties caused by the COVID-19 pandemic."

Meanwhile, the demand deposit balance at the five major banks stood at 523.3725 trillion KRW at the end of last month, a decrease of 10.8041 trillion KRW (2.02%) compared to the end of June. This is the opposite trend to the increases of over 17 trillion KRW in May and over 23 trillion KRW in June. Demand deposits strongly represent idle funds in the market that have not found suitable investment destinations. It is analyzed that due to continued volatility in the financial market and a sharp drop in deposit interest rates, funds have shifted to alternative investments such as gold and dollars.

This content was produced with the assistance of AI translation services.