Korea’s household debt growth fastest in 10 mos following rate cut

2019.09.11 15:06:05 | 2019.09.11 15:07:10

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Household loans extended by South Korean financial institutions rose by 7.4 trillion won ($6.2 billion) in August, the biggest gain in 10 months amid recovery in housing transactions in Seoul and demand for loans for jeonse, or long-term rents as interest rates near all-time lows.

According to data from the Bank of Korea (BOK) on Wednesday, household lending by local financial institutions increased 7.4 trillion won in August. It is the biggest gain for the month since 8.6 trillion won addition in 2016.

The growth sharply picked up compared to the additions of 5.8 trillion won in July and 5.9 trillion won in the same month last year.

Data showed that household lending by local financial institutions gained in all sectors including mortgage loans, credit loans, and overdraft accounts.

In August, home-backed loans extended by local banks increased 4.7 trillion won, up from a 3.7 trillion won gain in July. The BOK attributed the increase to a rise in housing transactions in Seoul and more demand for loans for long-term rents.

Other loans, including credit loans, also rose 2.7 trillion won in August, up from 2.2 trillion won gain in the previous month. The increase came as people increased spending for summer holiday and some sought to secure funds for jeonse through credit loans amid the government’s tightened regulations on real estate loans.

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The growth also is timed with the lowering of the key interest rate by the central bank to 1.50 percent, a tad higher than the historic low of 1.25 percent.

The growth in banks’ corporate loans also gained in August from a month earlier.

Corporate loans extended by local banks increased 3.5 trillion won in August, up from a 1.5 trillion won gain in July. Outstanding loans to large conglomerates dropped by 1.9 trillion won but those to small- and mid-size companies increased 5.4 trillion won.

Among loans extended to small- and mid-size companies, fresh loans extended to individual businesses gained 2.7 trillion won in August, up from a 2 trillion won gain in July.

The net amount of corporate bonds issued in August, meanwhile, gained 100 billion won due to summer holiday period.

Banks’ receiving balance amounted to 1,709 trillion won in August, data showed, up 24.8 trillion won from a month ago. Money market deposits increased 14 trillion won ahead of companies’ corporate tax payments and fixed deposits also gained 11 trillion won.​

By Kim Yeon-joo and Lee Eun-joo

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