Household Debt Decreased for the First Time in Over 10 Years in Q4 Last Year... Down 4.1 Trillion Won from Q3

Household Loans Decrease by 7.5 Trillion Won to 1,749.3 Trillion Won

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] The household credit (debt) size in the fourth quarter of last year decreased by 4.1 trillion KRW compared to the previous quarter. This is the first time in over 10 years that household debt has declined quarter-on-quarter. While household loans decreased due to continued interest rate hikes, sales credit increased significantly as year-end consumption recovered. In the case of mortgage loans, the total balance increased to an all-time high, but the growth rate slowed due to sluggish housing transactions.

According to the Bank of Korea on the 21st, the household credit balance at the end of the fourth quarter of last year was 1,867 trillion KRW, down 4.1 trillion KRW from the end of the previous quarter, marking a shift to a declining trend. This is the first time in 39 quarters since Q1 2013 (-900 billion KRW) that the household credit balance decreased compared to the previous quarter. However, compared to the same period last year, it increased by 0.2%, recording the smallest growth rate ever.

Looking specifically at household credit, household loans stood at 1,749.3 trillion KRW, decreasing by 7.5 trillion KRW, while sales credit rose by 3.4 trillion KRW to 117.7 trillion KRW. The steep increase in the Bank of Korea’s base interest rate has increased interest burdens, leading to a reduction in household loans, but consumption is interpreted as increasing.

In household loans, other loans amounted to 736.7 trillion KRW, down 12.2 trillion KRW. Due to rising loan interest rates and continued loan regulations (DSR phase 3), this marks the fifth consecutive quarter of decline. The mortgage loan balance reached 1,012.6 trillion KRW, the largest ever recorded.

By institution, deposit banks (-400 billion KRW), non-bank deposit-taking institutions (-3.8 trillion KRW), and other financial institutions (-3.3 trillion KRW) all decreased.

Park Chang-hyun, head of the Bank of Korea’s Financial Statistics Team, explained, "Although sales credit increased, household loans decreased, leading to a decline in the overall household credit size. This is due to the sluggish real estate market, continued base rate hikes causing loan interest rates to rise, and ongoing DSR (debt service ratio) regulations."

Sales credit increased to an all-time high of 117.7 trillion KRW as consumption continued to rise following the lifting of COVID-19 social distancing measures. It increased by 3.4 trillion KRW quarter-on-quarter, mainly driven by credit specialized companies.

Park added, "Sales credit has been increasing for eight consecutive quarters. After the COVID-19 pandemic, non-face-to-face consumption became more active, normalizing credit card use, and the lifting of social distancing in April last year also seems to have contributed to the consumption recovery."

On an annual basis last year, household credit increased by 4.1 trillion KRW, marking the smallest increase since the statistics were compiled.

Household loans decreased by 7.8 trillion KRW annually for the first time since the statistics began, while sales credit increased by a record 11.9 trillion KRW.

Regarding the outlook for household credit, Park said, "In January, the trend of reducing household debt seems to have continued. Although factors such as easing real estate regulations, the launch of new policy mortgages like the special Bogeumjari Loan, and banks’ relaxed lending attitudes are increasing household credit, considering the high interest rate levels and sluggish real estate market, it seems unlikely that household credit will expand rapidly."

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