Household Loans Increase by 78 Trillion Won This Year Alone... Could Become a Financial Risk Trigger for 2030 (Comprehensive)

Rapidly Rising Negative Account Interest Rates
Loan Demand Continues Despite Rate Hikes Amid Real Estate Yeongkkeul and Stock Debt Investment Craze

[Asia Economy Reporter Park Sun-mi] "My annual salary has increased and my assets have grown, but the interest rate on my negative balance overdraft account (Ma-tong) that I opened last year at 2.1% per annum has risen to 3.3% at this renewal."

As the Bank of Korea is expected to raise the base interest rate as early as this month, borrowers are becoming increasingly concerned. In particular, interest rates on credit loans, including the easily accessible Ma-tong, have soared, sharply increasing interest burdens. With household loans in the financial sector increasing by more than 78 trillion won this year and strong regulatory measures proving ineffective, there is a possibility that if borrowers cannot bear the increased principal and interest repayment burden due to the base rate hike, it could lead to financial distress.

According to the Bankers Association and the financial sector on the 12th, the average interest rates on Ma-tong handled by the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?in June ranged from 2.92% to 3.53% per annum. Compared to 2.62% to 2.97% a year ago, this is an increase of about 0.6 percentage points. During the same period, internet bank KakaoBank's rates also rose by 1.14 percentage points annually.

The rise in credit loan interest rates is due to banks adjusting total household loans by reducing preferential rates or limits in accordance with regulatory orders, as well as the increase in the one-year bank bond rates that form the basis for interest rate calculations. The problem is that while interest rates should reduce loan demand as intended by financial authorities, the number of borrowers taking on debt is actually increasing, thereby increasing the debt burden on ordinary citizens.

This is because the frenzy of "Yeongkkeul" (borrowing to the limit) and "Debt Investment" (borrowing to invest) continues among younger generations in the real estate and stock markets, and the prolonged COVID-19 pandemic has made it difficult for many to repay existing debts due to financial hardship.

According to the Financial Services Commission, the net increase in household loans across the entire financial sector from January to July this year reached 78.8 trillion won. This is a surge of 32.9 trillion won (71.6%) compared to 45.9 trillion won during the same period last year. It is 3.3 times the increase of 23.7 trillion won recorded from January to July 2019, before the COVID-19 outbreak.

Household Loans Still Rapidly Increasing... Twice the Annual Growth Management Target of 5-6%

Even looking at July alone, when the borrower-specific total debt service ratio (DSR) 40% loan regulation was applied, the loan growth trend is clear. Household loans across all financial sectors increased by 15.2 trillion won last month, surpassing the 10.3 trillion won increase in June. The year-on-year growth rate of household loan balances at the end of July was 10%, double the annual growth management target of 5-6%.

The household loan growth rate fluctuated between 8% and 8.5% from November last year to March this year for five months, then rose to a high level of 9.6% to 10% from April to July for four months. Industry insiders cite the failure to control real estate prices, which expanded the increase in mortgage loans despite the interest rate hike concerns, and the surge in credit loans including Ma-tong due to the enthusiasm for public stock subscription through KakaoBank as the main causes.

The financial authorities have decided to tighten supervision to manage the total household debt growth rate at around 5-6%, and Financial Services Commission Chairman Eun Sung-soo has explicitly ordered financial holding company chairmen to this effect. Therefore, additional signals to suppress loan growth to 3-4% by the end of the year are likely to appear. However, if factors encouraging loan increases such as real estate and stock investments do not subside, there are concerns that this could cause a counterproductive effect by only increasing interest burdens.

Park Sung-jin, Deputy Director of the Market General Team at the Bank of Korea's Financial Market Department, said, "Because there is still strong demand for funds related to housing sales and jeonse (long-term lease), other loans for risky asset investments such as stocks, and COVID-related living and business funds, it will be difficult for the household loan growth trend to slow significantly."

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