'Bittu' and 'Yeongkkeul' Drive Household Loans to Record High as of September: "10 Trillion Won Withdrawn in One Month" (Comprehensive)

Surge in Debt Investment Drives Other Loan Balances Up by 3.8 Trillion Won MoM
Mortgage Loans Increase by 6.7 Trillion Won, Credit Loans by 3 Trillion Won... September Hits Record High
Bank of Korea: "Efforts by Financial Authorities and Banks to Control Credit Loans Will Show After October"

The day after the Bank of Korea abruptly cut the base interest rate to a historic low of 0.75% per annum, a bank counter in Seoul appeared quiet on the 17th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporters Eunbyeol Kim, Hyojin Kim] Last month, the increase in household loans recorded the highest growth ever for the month of September. It was the second-largest monthly increase following August, which saw the largest increase on record. This is attributed to the combined effects of the debt-fueled investment craze known as "debt investment" (bit-tu), the all-in borrowing trend called "young-kkeul" (borrowing to the soul), the rental housing shortage, and last-minute demand before banks tightened credit loans.

According to the "Household Loan Trends for September 2020 (Preliminary)" released on the 13th by the Financial Services Commission, Financial Supervisory Service, and Bank of Korea, the total household loan balance across all financial sectors increased by 9.6 trillion KRW last month, maintaining a high growth rate following August's 11.7 trillion KRW increase. Compared to September of last year (4.8 trillion KRW), the increase doubled.

Mortgage loans increased from 6.1 trillion KRW in August to 6.7 trillion KRW as demand for funds related to home purchases and rental deposits continued, along with the execution of previously approved group loans.

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, rental prices in the Seoul metropolitan area have risen, leading to an increase in rental deposit loans following August." The increase in bank rental deposit loans rose from 3.4 trillion KRW in August to 3.5 trillion KRW in September.

September Bank Household Loans 9.6 Trillion KRW... 'Second Highest Ever'

Other loans increased by 3 trillion KRW in September, a smaller increase compared to August's 5.7 trillion KRW. Although there was some increase in credit loans due to fund demand related to Kakao Games and Big Hit IPO subscriptions, the increase was limited by the inflow of Chuseok bonuses.

Both mortgage and other loans showed the largest increase ever when comparing only the growth in September each year.

The decrease in other loans compared to August is also believed to be influenced by financial authorities' efforts to manage credit loans. Yoon said, "Since credit loan tightening has been actively implemented since after the Chuseok holiday, other loans are expected to generally decrease 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, a smaller increase compared to August's 5.9 trillion KRW, but the September increase was the largest since 2015 (5.7 trillion KRW) based on monthly growth.

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 is also shifting in that direction."

Corporate bond issuance expanded, but with an increase in maturing 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 by 41.1 trillion KRW in September, a significant rise compared to the previous month (8.3 trillion KRW). Demand deposit accounts increased by 34.8 trillion KRW due to deferred corporate tax payments around the September holidays, disaster relief funds, and Chuseok bonuses. Time deposits turned to an increase of 5.6 trillion KRW as some banks attracted corporate funds to manage regulatory ratios.

Rapidly Increasing Credit Loans Slow Down

Meanwhile, the increase in credit loans slowed slightly. In the banking sector, credit loan demand remained steady under the low-interest rate environment, increasing by 3 trillion KRW, but the increase was 2.7 trillion KRW less than the previous month (5.7 trillion KRW).

The secondary financial sector also saw credit loans increase by 700 billion KRW, but the increase was 1.6 trillion KRW less than the previous month (2.3 trillion KRW).

The financial authorities stated, "We will closely monitor household loan trends to ensure that the increase in household debt does not become a risk factor for our economy, and if household debt instability continues, we will consult with relevant ministries to implement necessary management measures."

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