As Mortgage Loans Increase, Household Credit Surges Again... 9.5 Trillion Won Rise in Q2

Household Credit Increases Again After Three Quarters
Sharp Rise in Mortgage Loans Amid Real Estate Transaction Recovery

In the second quarter of this year, the scale of household credit (debt) in South Korea increased by 9.5 trillion won. This is the largest increase since the fourth quarter of 2021. The Bank of Korea explained that it is closely monitoring the significant rise in household debt again.

According to the 'Household Credit (Provisional)' data released by the Bank of Korea on the 22nd, the outstanding balance of household credit at the end of the second quarter of this year was 1,862.8 trillion won, an increase of 9.5 trillion won compared to the end of the previous quarter.

Household credit had consecutively decreased in the fourth quarter of last year (-3.6 trillion won) and the first quarter of this year (-14.3 trillion won), but turned to increase again after three quarters. The increase in the second quarter is the largest since 17.4 trillion won in the fourth quarter of 2021.

The outstanding balance of household loans, which accounts for most of household credit, was 1,748.9 trillion won, up 10.1 trillion won from the end of the previous quarter. This was due to an increase in mortgage loans (Judaemae) driven by the recovery of the real estate market and a reduction in the scale of decrease in other loans.

The increase in mortgage loans rose significantly from 4.5 trillion won in the first quarter to 14.1 trillion won in the second quarter. Expectations of future base rate cuts led to a continuous increase in nationwide housing sales with 91,000 units in the fourth quarter of last year, 119,000 units in the first quarter of this year, and 155,000 units in the second quarter, which also expanded mortgage loans.

The decrease in other loans shrank significantly from 15.5 trillion won in the first quarter to 4 trillion won in the second quarter. The Bank of Korea explained, "Although other loans have decreased for seven consecutive quarters due to contraction in non-residential real estate secured loans, the decline has slowed due to seasonal factors such as Family Month and an increase in securities firms' credit extensions."

Seo Jeong-seok, 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 2023 at the Bank of Korea in Jung-gu, Seoul, on the morning of the 22nd. (Photo by Bank of Korea)

By institution, loans from deposit banks turned to increase by 4 trillion won for the first time in six quarters, and other financial institutions (12.6 trillion won) saw an expanded increase mainly in mortgage loans. On the other hand, non-bank deposit-taking institutions (-6.5 trillion won) continued a decline for four consecutive quarters due to strengthened risk management of real estate loans.

The outstanding balance of sales credit was 113.9 trillion won, a decrease of 600 billion won. The decrease narrowed compared to the first quarter (-3.3 trillion won). The Bank of Korea explained, "Although installment finance companies reduced sales credit due to strengthened risk management, the overall decline in sales credit slowed as credit card usage increased due to seasonal factors."

Seo Jeong-seok, head of the Financial Statistics Team at the Bank of Korea, said, "Since household credit has turned to an increasing trend again, the Bank of Korea and related authorities including the government are paying close attention and carefully monitoring it," adding, "There is a consensus that the household debt ratio relative to gross domestic product (GDP) should be managed so that it does not rise further, so it is necessary to watch the trend."

He explained that the 50-year mortgage loan, recently cited as a major cause of household loan expansion, could be a temporary factor for household loan increases in the third quarter of this year.

Seo said, "Since commercial banks launched 50-year mortgage loans after July, they are not reflected in the second quarter household loans but are expected to be reflected in the third quarter," adding, "Financial authorities have started on-site inspections of household loans by bank, and some banks have already reached their limits and are considering age restrictions, so it is expected to act as a temporary factor in the third quarter."

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