Household Loan Threshold Broken... Increased by 87.4 Trillion Won up to August, Up 5.3%

Financial Authorities Propose 5-6% Upper Limit on Growth Rate

[Asia Economy Reporter Lee Kwang-ho] Although financial authorities have set an annual household loan growth rate cap at 5-6% to curb the snowballing household debt, it is expected to be difficult to maintain. Critics point out a vicious cycle where the surge in household loans pushes up housing prices, and the increased housing prices in turn expand the loan volume.

According to financial authorities on the 10th, household loans across the entire financial sector, including the secondary financial sector, increased by 87.4 trillion KRW from the beginning of this year to August, far exceeding the increase of 60.2 trillion KRW during the same period last year.

Considering that the total household loan balance in the entire financial sector was 1,630.2 trillion KRW at the end of last year, this represents a 5.3% increase. This touches the Financial Services Commission's target range of 5-6%.

Looking at just the past month, the increase was 8.5 trillion KRW, which slowed compared to the previous month (15.3 trillion KRW) and August last year (14.3 trillion KRW). It was also lower compared to the average monthly increase this year (10.9 trillion KRW).

The trend in the banking sector is similar. According to the Bank of Korea, as of last month, the household loan balance was 1,046.3 trillion KRW, up 5.8% (57.5 trillion KRW) from 988.8 trillion KRW at the end of last year. Compared to the same period last year, the household loan growth rate (6.7%) slowed, but the increase amount (59.9 trillion KRW) was at a similar level.

Although the increase rate is not as explosive as last year when it approached 10% due to the Bank of Korea's base rate hikes and loan restrictions by financial institutions, it can be said that the financial authorities' loan growth cap has effectively been breached.

This year, housing mortgage loans within bank household loans increased by 5.9% (42.3 trillion KRW), and other loans such as credit loans increased by 5.7% (15.2 trillion KRW).

The increase in mortgage loans is the same as the same period last year and 62% (15.6 trillion KRW) higher than the same period in 2019 (26.7 trillion KRW). This contrasts with credit loans, which decreased by 14.1% (2.5 trillion KRW) compared to the same period last year, totaling 15.2 trillion KRW.

According to the monthly KB Housing Price Trend, as of last month, the average apartment sale price nationwide was 523.22 million KRW, more than 100 million KRW higher than the same period last year (419.3 million KRW). During the same period, the nationwide apartment jeonse (long-term deposit lease) price was 323.55 million KRW, more than 60 million KRW higher than the same period last year (259.39 million KRW). Whether for sales or jeonse, the structure inevitably leads to an increase in mortgage loans.

Some voices suggest that financial authorities may have set the household loan growth target too tightly without understanding the realities of the real estate market.

Park Hap-su, Senior Real Estate Specialist at KB Kookmin Bank, pointed out, "In the case of jeonse loan funds, raising the guideline too much has limitations in terms of housing stability for low-income groups and actual demanders."

Professor Sung Tae-yoon of Yonsei University's Department of Economics advised, "Financial authorities are tightening the financial sector to keep household loan growth rates below 5-6%, but even reflecting the Bank of Korea's forecasted economic growth rate (4%) and inflation rate (1.7%), the level is exceeded. Financial authorities need to prepare more sophisticated management plans to minimize shocks to actual demanders."

In this regard, a financial authority official stated, "We are reviewing various measures for the soft landing of household debt," adding, "However, no specific measures or implementation schedules have been finalized."

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