South Korea’s household debt hit a fresh historic high of 1,682.1 trillion won ($1.5 billion) in the third quarter as Koreans relied on cheap borrowings to survive distress from the prolonged Covid-19 crisis and invest in stock and real estate assets.

According to data released by the Bank of Korea (BOK) on Tuesday, the outstanding balance of household credit loans stood at 1,682.1 trillion won as of end of September, a quarterly high since the central bank began compiling related data in the fourth quarter of 2002.

Household credit refers to comprehensive household debt that adds up all of the loans taken out by households from banks, insurers, private lenders, and public financial institutions and credit card purchases.

Household debt in the third quarter rose 2.7 percent or 44.9 trillion won from the second quarter (1,637.3 trillion won), marking the second-largest growth since 46.1 trillion won in the fourth quarter of 2016.

The outstanding balance of household loans – which is household credit minus card purchases – also reached an all-time high of 1,585.5 trillion won as of end of September. The third quarter growth of 39.5 trillion won is the second largest after 41.2 trillion won in the fourth quarter of 2016.

The increase in household loans was mainly due a surge in mortgage loans. The outstanding balance of mortgage-backed loans reached 890.4 trillion won in the third quarter, up 17.4 trillion won from the previous quarter. The growth was larger than the second quarter of 14.8 trillion won and the largest in nearly four years after 24.2 trillion won in the fourth quarter of 2016.

Other loans among household loans increased 22.1 trillion won to 695.2 trillion won in the third quarter. The growth was more than double than that of 9.4 trillion won in the second quarter and the largest so far.

The BOK said that housing purchase and long-term rent transactions surged in the third quarter compared to the second quarter and the third quarter of last year, leading to an increase in demand for mortgage funds. Demand was also high for stock investment funds.

The central bank also noted that individuals also turned to loans to survive Covid-19 crisis as they were in need of money for living.

By institution, loans extended by depository banks increased 26 trillion won in the third quarter from the second quarter and by non-banking depository institutions such as mutual savings bank and community credit cooperatives 3.1 trillion won, and other financial institutions such as insurance firms 10.4 trillion won.

The outstanding balance of merchandise credits, meanwhile, reached 96.6 trillion won in the third quarter. Loans extended by credit-specialized financial companies added 5.4 trillion won in the third quarter, the largest quarterly growth.

The BOK said merchandise credits surged as consumer spending recovered in the third quarter from the first and second quarters ending June and non-face-to-face and online purchases surged amid coronavirus pandemic. Credit card payment was also deferred to October due to Chuseok holiday between Sept. 30 and Oct. 2.

By Lee Eun-joo

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