South Korea’s financial authorities and banking sector have been implementing various measures to curb the upward trajectory of household debt, but there are no signs of a slowdown yet. In just two weeks in September, household loans from the country’s top five banks increased by a staggering 800 billion won ($60.34 million), with signs of a rebound in credit loans after nearly two years of decline. Adding to the concern is the increasing trend in home-backed loans by landlords to return part of jeonse (key money) deposits to their tenants.

According to sources on Monday, the outstanding household debt at the nation’s five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup), hit 681 trillion won, up by 809.6 billion won from the end of August. This marks the debt’s fifth consecutive month of growth since May, and if this trend continues, the September increase could surpass the 1.59 trillion won recorded in August.

Key drivers behind the recent surge in household debt have been mortgage loans, which have surged by 617.6 billion won in the space of two weeks. Growth slowed from last month as authorities and banks put the brakes on 50-year mortgages, but demand for loans remains strong.

The resurgence of credit loans is also a cause for concern. During the same period, credit loans increased by 344.5 billion won, totaling 108.76 trillion won. If this growth persists until the end of the month, it will mark the first rebound in credit loans at the five major banks since November 2021 when they hit 305.9 billion won.

The rising demand for home-backed loans for jeonse deposits has added another layer of complexity to the effort to control household debt. The decline in home prices has led to an increase in “reverse jeonse,” where landlords need to take out loans to pay back part of the deposit to tenants and the trend is likely to surge in the second half of the year. According to the Bank of Korea, as of April 2023, the proportion of households at risk due to reverse jeonse in Seoul, non-capital regions, and the Gyeonggi-Incheon area stood at 48.3 percent, 50.9 percent, and 56.5 percent respectively.

By Shin Chan-ok and Minu Kim

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