Bank of Korea's 'Q2 2025 Household Credit' Hits All-Time High

Increase in Housing Transactions in February and March Reflected... Mortgage Loans Up by 14.9 Trillion Won

Stock Market Rebound Leads to More Borrowing from Securities Firms for Investment

"High Growth Expected for the Time Being... Need to Watch for Trend Stabilization"

On the 19th, a briefing on the provisional household credit for the second quarter of 2025 is being held at the Bank of Korea in Jung-gu, Seoul. Photo by Yonhap News

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South Korea's household credit (debt) surged by nearly 25 trillion won in just three months, setting a new all-time high. This was driven by a sharp increase in mortgage loans as well as a rise in so-called 'debt-fueled investments' following a rebound in stock prices. Although the government’s stringent regulations have slowed the rise in mortgage loans in the second half of the year and housing prices in the Seoul metropolitan area have stabilized, there are forecasts that it remains to be seen whether this will lead to a sustained stabilization trend.

According to the 'Q2 2025 Household Credit (Provisional)' report released by the Bank of Korea on the 19th, the outstanding balance of household credit at the end of the second quarter reached 1,952.8 trillion won. This is an increase of 24.6 trillion won from the previous quarter and marks the largest figure since related statistics began to be published. The increase is the highest in three years and nine months since the third quarter of 2021 (35 trillion won).

Household credit refers to comprehensive household debt, which includes loans from banks, insurance companies, private lenders, and public financial institutions, as well as pre-settlement credit card usage (sales credit).

South Korea's household credit decreased by 3.1 trillion won quarter-on-quarter in the first quarter of last year, but turned to an increase of 13.4 trillion won in the second quarter, and has now risen for five consecutive quarters. Notably, the 24.6 trillion won increase in the second quarter of this year is the largest since the upward trend began, surpassing the 18.8 trillion won increase in the third quarter of last year, the 11.3 trillion won in the fourth quarter, and the 2.3 trillion won in the first quarter of this year.

Excluding card payments (sales credit), the outstanding balance of household loans stood at 1,832.6 trillion won, up by 23.1 trillion won from the previous quarter. This increase is larger than the 3.9 trillion won rise in the first quarter.

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Among household loans, the outstanding balance of mortgage loans reached 1,148.2 trillion won, up by 14.9 trillion won from the previous quarter, leading the overall increase in household credit. Other loans, including unsecured loans, increased by 8.2 trillion won during the same period to 684.4 trillion won. Minsu Kim, Head of the Financial Statistics Team at the Economic Statistics Division 1 of the Bank of Korea, explained, "The increase in housing transactions since February has had a lagged effect on mortgage loans. The seasonal factors in the first quarter, such as the repayment of unsecured loans using bonuses, have faded, leading to a turnaround in unsecured loan growth. In addition, the rebound in stock prices has resulted in an increase in credit extensions from securities firms."

By lending channel, household loans from deposit banks stood at 993.7 trillion won, up by 19.3 trillion won from the previous quarter. This is a larger increase than the 8.4 trillion won in the first quarter, mainly due to a 16 trillion won rise in mortgage loans. The outstanding balance of household loans from non-bank deposit-taking institutions, such as mutual finance, mutual savings banks, and credit unions, was 314.2 trillion won, up by 3 trillion won from the previous quarter. The Bank of Korea explained that the continued increase in mortgage loans (up 3.6 trillion won) and the expansion of inclusive finance programs such as the Sunshine Loan have reduced the decline in other loans.

The outstanding balance of household loans from other financial institutions, including insurance companies, securities firms, and asset-backed securities companies, was 524.7 trillion won, up by 900 billion won. While mortgage loans continued to decline due to net repayments of loans from the Housing and Urban Fund and the securitized portion of the Korea Housing Finance Corporation's Bogeumjari Loan, the increase in credit extensions from securities firms, driven by the stock market rebound, led to a larger increase in other loans.

In the first quarter of this year, the outstanding balance of sales credit (card payments) within household credit was 120.2 trillion won, up by 1.4 trillion won from the previous quarter as credit card usage expanded.

To accurately assess the scale of policy loans, the restructured category of 'policy loans from the Korea Housing Finance Corporation and the Housing and Urban Fund,' which now includes all individual housing-related policy loans, stood at 331.1831 trillion won at the end of the second quarter, accounting for 28.8% of all mortgage loans.

Yonhap News

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The Bank of Korea explained that, while the increase in household credit in the second half of the year is expected to be smaller than in the second quarter, it remains to be seen whether the downward stabilization of household debt will continue. Kim stated, "Given that the increase in household loans in July was smaller than in June, it appears that the government's household loan measures and the impact of the third-stage stress-based debt service ratio (DSR) implemented in July are taking effect. However, since housing transactions remained high through June, rapid growth may continue for the time being, and although housing prices in the Seoul metropolitan area are stabilizing, it is still too early to determine whether this will lead to a sustained stabilization trend."

The Bank of Korea is setting its policy goal on controlling the pace of household debt growth rather than reducing the overall size, taking into account the impact on the real economy. In terms of household debt growth, household credit increased by 1.3% in the second quarter. However, as the increase in the first quarter was only 0.1%, the cumulative growth for the first half of the year was 1.4%. Kim noted, "On a first-half basis, the ratio of household debt to nominal GDP is likely to see only a slight increase compared to the end of last year. Whether the downward stabilization trend in the annual household debt ratio continues will depend on whether household debt stabilizes in the second half, by how much it decreases, and whether nominal GDP growth rebounds."

He continued, "The Bank of Korea is closely monitoring household debt trends together with financial authorities," adding, "While maintaining a monetary easing stance in response to the economic situation, since these measures can affect financial stability such as household debt and the housing market, the government's policy responses and the Bank of Korea's interest rate policies will coordinate to simultaneously promote economic growth, price stability, and financial stability."