September Still a Debt Feast... Household Loans +9.6 Trillion, Corporate Loans +5 Trillion

Bank of Korea 'Financial Market Trends in September 2020'

[Asia Economy Reporter Eunbyeol Kim] Last month, the increase in household loans recorded the highest level ever for the month of September. It was the second-largest monthly increase following August, which saw the largest increase on record.

According to the "Financial Market Trends for September 2020" released by the Bank of Korea on the 13th, bank household loans including policy mortgage loans increased by 9.6 trillion KRW in September, showing a strong growth following August's increase of 11.7 trillion KRW. Compared to September last year (+4.8 trillion KRW), the increase doubled.

Mortgage loans increased from 6.1 trillion KRW in August to 6.7 trillion KRW in September, as demand for funds related to home purchases and jeonse (long-term lease) continued, and execution of already approved group loans rose.

Yoon Okja, head of the Market General Team at the Bank of Korea’s Financial Market Department, explained, "The housing transactions that increased in June and July continued to be executed with a time lag, and recently, as jeonse prices in the metropolitan area rose, jeonse loan demand also showed an increasing trend following August." Bank jeonse loan increases rose from 3.4 trillion KRW in August to 3.5 trillion KRW in September.

Other loans increased by 3 trillion KRW in September, a smaller increase compared to August (+5.7 trillion KRW). Although there was some increase in unsecured loans due to fund demand related to Kakao Games IPO subscription, Big Hit IPO subscription, etc., the increase was limited as Chuseok bonuses flowed in.

Both mortgage loans and other loans showed the largest increase ever when comparing only the annual September increases.

The decrease in other loans compared to August appears to be influenced by financial authorities’ efforts to manage unsecured loans. Yoon said, "Since tightening of unsecured loans has been actively implemented since after the Chuseok holiday, other loans are expected to generally shrink from October onward." However, she added that household fund demand typically expands seasonally in the fourth quarter, so the authorities’ loan management efforts and fund demand are intertwined.

Bank corporate loans increased by 5 trillion KRW in September, narrowing the increase compared to August (+5.9 trillion KRW), but the September increase was the largest since 2015 (+5.7 trillion KRW).

There was a gap between large corporations and small and medium enterprises (SMEs) in corporate loans. Large corporate loans decreased by 2.3 trillion KRW last month, widening the decline, while SME loans increased from 6.1 trillion KRW to 7.3 trillion KRW. This was because large corporations’ demand for working capital slowed and they temporarily repaid loans at the end of the quarter, whereas SMEs increased loans with support from policy financial institutions.

Yoon explained, "The difficulties related to the resurgence of COVID-19 seem to be affecting small business owners, small and medium corporations, and individual business owners more than large corporations, so overall fund demand appears to be concentrated in those sectors."

Corporate bond issuance expanded, but with an increase in matured bonds, net issuance shrank from 1 trillion KRW in August to 500 billion KRW in September. Stock issuance expanded to 900 billion KRW due to Kakao Games’ IPO (400 billion KRW) and others.

Bank deposits increased significantly by 41.1 trillion KRW in September compared to 8.3 trillion KRW in the previous month. Demand deposits increased by 34.8 trillion KRW due to deferred corporate tax payments around the September holidays, inflow of disaster relief funds, and Chuseok bonuses. Time deposits turned to an increase (+5.6 trillion KRW) as some banks attracted corporate funds to manage regulatory ratios.

Asset management company deposits decreased from 300 billion KRW in August to -9.3 trillion KRW in September due to seasonal factors. Money Market Funds (MMF) saw a sharp increase in outflows from 2.3 trillion KRW to 10 trillion KRW as banks and corporations withdrew funds to manage financial ratios at the end of the quarter. Bond funds (+2.5 trillion KRW → +200 billion KRW) saw a reduced increase, and equity funds (-1.3 trillion KRW → -1.2 trillion KRW) continued their decline.

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