As Interest Rates Rise, "Let's Repay Debt First"... Loan Demand Suddenly Drops

Outstanding Household Loans at 5 Major Banks Decline for 5 Consecutive Months
Savings and Deposits Show Upward Trend

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] The outstanding balance of household loans at the five major commercial banks in South Korea has continued to decline for five consecutive months since January this year. As of the end of May, it decreased by more than 1.3 trillion KRW compared to the previous month.

According to the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?the outstanding balance of household loans at the end of last month was recorded at 701.0615 trillion KRW. This is a decrease of 1.3302 trillion KRW compared to the end of April. Notably, the decrease recorded this month was larger than that of the end of April (802 billion KRW). A representative from a commercial bank explained, "As interest rates rise, there is a trend of early repayment of loans using surplus funds," adding, "There is also a transaction freeze phenomenon in the real estate market, leading to an overall reduction in loan balances."

The outstanding balance of mortgage loans at the end of last month was 506.6723 trillion KRW, down 52.45 billion KRW from the previous month. This marks a return to a declining trend after three months since February (-16.57 billion KRW). The balance of unsecured loans was 131.7993 trillion KRW, decreasing by 66.13 billion KRW compared to the previous month.

While household loans have decreased, corporate loans have steadily increased. At the end of last month, the outstanding balances of loans to large corporations and small and medium-sized enterprises were 89.9675 trillion KRW and 578.0954 trillion KRW, respectively, increasing by 2.3363 trillion KRW and 5.1708 trillion KRW compared to the previous month.

Deposits at the five major banks have been on the rise, centered on savings and time deposits, following the increase in interest rates. At the end of last month, the balance of time deposits increased by 19.1369 trillion KRW to 679.7768 trillion KRW. The increase was 17 times that of the previous month (1.1536 trillion KRW). The balance of installment savings deposits was 36.7597 trillion KRW, up by 8.006 billion KRW.

The balance of demand deposits also increased by 9.296 billion KRW to 703.6123 trillion KRW. However, the balance of Money Market Deposit Accounts (MMDA) decreased by 5.4762 trillion KRW, totaling 115.5332 trillion KRW.

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