Household Debt in Q2 Reaches 1869.4 Trillion Won... 6.4 Trillion Won Increase Due to Rising Mortgage and Credit Card Debt

Q2 Household Credit Announcement... Balance 1869 Trillion
Household Loans Up 1.6 Trillion, Sales Credit Up 4.8 Trillion
Housing Sales Slowed but Jeonse and Group Loans Increased
Year-on-Year Debt Growth Narrowed for 4 Consecutive Quarters

In front of a loan counter at a bank in Seoul [Photo by Yonhap News]

Household debt in the second quarter of this year increased by 6.4 trillion KRW compared to the previous quarter. This was due to an increase in household loans centered on mortgage loans, as well as a significant rise in sales credit following the lifting of COVID-19 social distancing measures. As the Bank of Korea continues its policy of raising the base interest rate, concerns are emerging that the continuous growth in household debt could negatively impact the economy of ordinary citizens.

According to the Bank of Korea's announcement on the 23rd of the "2022 Q2 Household Credit (Provisional)," the household credit balance at the end of the second quarter reached 1,869.4 trillion KRW, up 6.4 trillion KRW from the end of the previous quarter. This marks the 37th consecutive quarter of increase since Q2 2013. The Bank of Korea initially reported in May that household debt had decreased by 600 billion KRW in Q1, showing a decline for the first time in nine years, but later corrected this to an increase of 40 billion KRW.

Household credit in Q2 rose by 3.2% compared to the same period last year. Although the burden of interest rates increased, the growth rate has declined for four consecutive quarters since Q3 last year.

Household credit consists of "household loans" borrowed from banks and other financial institutions, and "sales credit," which refers to purchases made on credit cards or other deferred payment methods. In Q2, household loans amounted to 1,757.9 trillion KRW, increasing by 1.6 trillion KRW from the previous quarter. Sales credit rose by 480 billion KRW to 111.4 trillion KRW.

Household loans returned to an upward trend after a decrease of 800 billion KRW in Q1, as the increase in mortgage loans expanded and the decrease in other loans narrowed. By product, mortgage loans (from 8.1 trillion KRW to 8.7 trillion KRW) saw an expanded increase mainly in non-bank deposit-taking institutions, while other loans (-8.9 trillion KRW to -7.1 trillion KRW) continued to decline for the third consecutive quarter due to loan regulations and rising interest rates, though the rate of decrease slowed.

Regarding the increase in mortgage loans despite the recent slump in real estate transactions, the Bank of Korea explained, "Housing sales and jeonse (long-term lease) transactions in Q2 increased slightly compared to the previous quarter," and added, "while demand for housing purchase funds has somewhat contracted, demand for jeonse and group loans has increased."

Park Chang-hyun, head of the Financial Statistics Team at the Economic Statistics Bureau of the Bank of Korea, is explaining the main features of household credit (provisional) for the second quarter of 2022 on the morning of the 23rd at the Bank of Korea in Jung-gu, Seoul. (Photo by Bank of Korea)

By institution, household loans from deposit banks saw a reduced decrease from 4.5 trillion KRW in Q1 to 100 billion KRW in Q2 compared to the previous quarter. In contrast, non-bank deposit-taking institutions shifted from a 2.5 trillion KRW decrease in Q1 to a 900 billion KRW increase in Q2. For other financial institutions, the increase narrowed from 6.2 trillion KRW to 900 billion KRW during the same period.

Sales credit surged significantly from an 800 billion KRW increase in Q1 to a 4.8 trillion KRW increase in Q2, following the lifting of social distancing measures on April 18.

The Bank of Korea expects the growth in household credit to slow down for the time being. Park Chang-hyun, head of the Bank of Korea's Financial Statistics Team, said, "With the implementation of the third phase of the DSR (Debt Service Ratio) regulation starting in July and recent significant interest rate hikes, some households are likely facing increased interest burdens," adding, "Given the sluggish housing market, demand for housing purchase funds is expected to contract, and these factors are likely to persist into the second half of the year."

However, Park also noted, "From August, regulations on household loans have been eased mainly for first-time homebuyers and other real demand groups, and surveys indicate that banks may adopt a more lenient lending attitude toward household loans starting in Q3," explaining, "Therefore, it is necessary to monitor the future trends of household debt more closely."

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