Bank of Korea: Household Loans to Exceed Usual Levels for a While... "Increase Rate is Very Concerning"

December 10 Bank of Korea Announces 'December 2020 Monetary and Credit Policy Report'
Household Loans Pose Financial Stability Risks... "Low Possibility of Deterioration"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] It is forecasted that household loans will continue to increase above the usual levels for the time being as funds continue to flow into the housing market. This is due to the increased demand for funds for home purchases and stock investments.

On the 10th, the Bank of Korea analyzed in its 'December 2020 Monetary and Credit Policy Report' that housing-related loans are likely to maintain a high growth rate for the time being, as expectations for further increases in housing prices remain high.

The Bank of Korea explained, "At the beginning of the year, the shock caused by the novel coronavirus infection (COVID-19) led to an unavoidable increase in household loans during the response process."

It also predicted that unsecured loans will continue to increase for the time being. The Bank of Korea stated, "Considering the unused portion of already approved unsecured loan limits, the increase is expected to continue for the time being. However, the recently announced government measures to manage unsecured loans are expected to gradually ease the growth of unsecured loans with a time lag."

In fact, according to the 'Financial Market Trends in November 2020' released by the Bank of Korea the day before, household loans from banks increased by 13.6 trillion won last month, marking the highest level for November since related preliminary reports began in 2004.

By sector, mortgage loans increased by 6.2 trillion won as demand for sales transactions in the metropolitan area and provinces continued, and already approved group loans were executed. This marks a continuous increase of over 6 trillion won since August. On the other hand, jeonse (key money deposit) loans increased by 2.6 trillion won, a smaller increase compared to last month’s 2.3 trillion won.

Other loans, including unsecured loans, increased by 7.4 trillion won, the largest increase since 2004. Compared to the increase of around 3 trillion won in September and October, this is nearly double.

It is analyzed that unsecured loans surged before the regulatory measures were implemented on the 30th of last month. A Bank of Korea official stated, "It appears that preemptive demand occurred ahead of the implementation of unsecured loan regulations, causing a significant increase in other loans."

Accordingly, the Bank of Korea emphasized the need to closely monitor the increase in household debt going forward. The Bank of Korea said, "Considering the delinquency rate and distribution of household loans, the possibility of defaults is low. However, in the medium to long term, it could pose a threat to financial stability, so we will make efforts to stabilize it."

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