1Q Household Credit Down 13.7 Trillion KRW, Largest Ever Decline... Mortgage Loans at Record High

Bank of Korea 'Household Credit in Q4 2023'
Household Credit Declines for Second Consecutive Quarter

The scale of household credit (debt) shrank by nearly 14 trillion won in the first quarter of this year, marking the largest decrease on record. This is the biggest decline in over 20 years since statistics began being compiled in the fourth quarter of 2002. Due to the continued impact of interest rate hikes, household loans showed the largest decrease ever, and sales credit also turned to a decline for the first time in nine quarters, resulting in both household loans and sales credit decreasing simultaneously for the first time in history. However, the total balance of mortgage loans increased to an all-time high due to improvements in housing transactions.

According to the Bank of Korea on the 23rd, the balance of household credit at the end of the first quarter of this year was 1,853.9 trillion won, a sharp drop of 13.7 trillion won compared to the end of the previous quarter. The previous record for the largest decrease was 3.6 trillion won in the fourth quarter of last year. Compared to the same period last year, it also decreased by 9 trillion won (0.5%), marking the first decline since the statistics were compiled. Following the fourth quarter of last year, when household credit balance turned to a decrease for the first time in 39 quarters since the first quarter of 2013, the first quarter of this year saw the largest decrease ever, resulting in a decline for two consecutive quarters.

Looking specifically at household credit, household loans stood at 1,739.5 trillion won, decreasing by 10.3 trillion won, marking the largest decline ever, while sales credit was 114.4 trillion won, down by 3.4 trillion won. As the Bank of Korea’s base interest rate continued to rise, interest burdens increased, leading to a continued decrease in household loans.

Sales credit turned to a decline for the first time in nine quarters since the fourth quarter of 2020 (-200 billion won). Sales credit, which had swelled to a record high in the fourth quarter of last year, returned to a decrease in the first quarter of this year. This was due to the disappearance of seasonal factors such as increased year-end consumption and a reduction in interest-free installment benefits, which led to a decrease in credit card usage. Park Chang-hyun, head of the Bank of Korea’s Financial Statistics Team, explained, "Due to credit card companies shortening the interest-free installment period, the lump-sum payment portion of total credit card amounts in the first quarter remained largely unchanged, but the installment portion saw a decrease in credit card usage, which seems to have contributed to the decline in sales credit." He added, "Credit card usage increased as consumption recovered at the end of last year, but with the disappearance of seasonal factors in the first quarter, sales credit turned to a decrease."

In the case of household loans, other loans amounted to 721.6 trillion won, decreasing by 15.6 trillion won. This is the largest decline since the statistics began being compiled in the fourth quarter of 2007. The decrease continued for six consecutive quarters due to sustained high loan interest rates, loan regulations, and loan repayments following the inflow of bonuses at the beginning of the year.

On the other hand, the balance of mortgage loans reached a record high of 1,017.9 trillion won, increasing by 5.3 trillion won compared to the previous quarter. Park explained, "Despite a decrease in jeonse (key money deposit) loans, the increase in individual mortgage loans due to policy mortgage handling and improvements in housing transactions expanded the growth."

By institution, deposit banks (-12.1 trillion won) and non-bank deposit-taking institutions (-9.7 trillion won) decreased, while other financial institutions increased by 11.5 trillion won. Deposit banks decreased due to policy mortgage transfers and a reduction in unsecured loans, and non-bank deposit-taking institutions decreased as part of strengthened risk management for real estate loans. Conversely, other financial institutions turned to an increase due to growth in housing-related loans, policy mortgage acquisitions, and expansion of stock-related loans.

Regarding the outlook for household credit, Park said, "Household loans decreased by 13.7 trillion won in the first quarter, averaging about 4.5 trillion won per month, indicating a gradual debt reduction process in household credit flows." He added, "Since the Financial Services Commission announced a slight increase in household loans in April, the decrease and debt reduction in household loans may slow down somewhat in the second quarter." He further noted, "Recently, loan interest rates have been falling, and real estate transactions are showing signs of recovery, so the trends in loan interest rates and the real estate asset market will be important factors going forward."

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