Individuals Tightening Their Belts... Sharp Decline Starting from Personal Credit Loans

84% of July's Household Loan Reduction is Credit Loans
Repaying Quickly Amid Additional Interest Rate Hike Outlook

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Among household loans that have been declining for seven consecutive months, credit loans are decreasing even more sharply. It is perceived that loan interest rates, which have already been raised several times, will continue to rise in the future, creating a mood to quickly repay credit loans with somewhat unclear purposes first.

According to the financial sector on the 2nd, as of last month, the outstanding household loans of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?were recorded at 697.4367 trillion won. This is a decrease of 2.2155 trillion won compared to the previous month, marking a decline for seven consecutive months this year. In particular, the decrease in credit loans was remarkable. In just last month, credit loans decreased by 1.8533 trillion won compared to the previous month, the largest drop since March (2.4579 trillion won).

The decrease in credit loans has accelerated sharply over the past three months. In May, the decrease was 661.3 billion won compared to the previous month, accounting for 49.7% of the total household loan decrease, but in June, it nearly doubled to 1.1204 trillion won. The proportion of credit loans in the total household loan decrease also surged to 79.5%. This month, credit loans decreased by more than 1.8 trillion won, raising their share of the total household loan decrease to 83.7%.

Despite the government's deregulation increasing the credit loan limits, the outstanding balance actually decreased. Previously, financial authorities had limited bank credit loan limits to within annual income to curb household loans last year. However, as loans decreased this year due to rising interest rates, these regulations were relaxed. In line with this, major commercial banks raised credit loan limits to about 1.5 to 2 times the annual salary of office workers starting early last month.

Nevertheless, the reduction in credit loans is interpreted as being due to greater concerns about future interest rate hikes. On the 13th, the Bank of Korea's Monetary Policy Committee held a meeting and raised the base interest rate from 1.75% to 2.25% per annum. This was the first time the Bank of Korea implemented a 'big step' by raising the base rate by 0.5 percentage points. It is also the first time the base rate has been raised four times in a year (January, April, May, and July this year). Since the U.S. Federal Reserve (Fed) is expected to steadily raise the base rate until the end of the year, the dominant view is that the Bank of Korea will also raise rates further.

A representative from a commercial bank said, "The interest rate on credit loans, which had risen more steeply than mortgage loans, has reached about 6%, and the perception that it will rise further is already dominant. Borrowers with extra funds seem to be quickly repaying credit loans, which had somewhat unclear purposes such as stock investments," he explained.

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