Household Credit Balance
The size of household debt reached 980 trillion won (US$877 billion) in the second quarter of this year, the highest ever in history, as housing loans skyrocketed before acquisition tax reductions expired in late June.
The total is highly likely to top 1,000 trillion won (US$894.0 billion) before the end of this year as more people are expected to get new houses in the third quarter, and given the trend of household liabilities increasing in the second half of the year. The government is planning to come up with additional measures for housing market revitalization, too. Increasing house deposit loans and those for living expenses are expected to put further pressure on indebted households as well.
According to Bank of Korea data made available on August 22, the credit to households increased by 16.9 trillion won (US$15 billion) between April and June this year. The sum amounted to 980 trillion won (US$876 billion) as of the end of June, recording 5.5% growth year on year. The rate of increase had been 5.1% in Q1, 2013.
Household loans soared by 17.5 trillion won (US$15.6 billion) during the three-month period to 926.7 trillion won (US$829 billion). The increment had been approximately 3.3 trillion won (US$3.0 billion) in Q1 this year, but expanded more than five-fold as more loans were taken out by home buyers before the expiration of the acquisition tax reduction.
The household credits provided by deposit banks had decreased by 4.9 trillion won (US$4.4 billion) in Q1, but went up by 8.3 trillion won (US$7.4 billion) in the following quarter to add up to 470.7 trillion won (US$420.8 billion). The increased amount grew 3.5 trillion won (US$3.1 billion) when compared to Q2, 2012. Those handled by non-bank depository institutions increased by 3.1 trillion won (US$2.8 billion) in the preceding quarter as well, and the balance reached 195.8 trillion won (US$175.3 billion), driven mainly by such seasonal factors as May being the family month, loans taken out by farming households, and the current economic recession. Non-bank institutions including savings banks are characterized by higher lending rates, and thus the rapid increase in loan balance is likely to affect the household debt situation.
In the meantime, the balance of lending by other financial institutions such as insurers and pension funds decreased from 8.1 trillion won (US$7.2 billion) to 6.1 trillion won (US$5.4 billion) between Q1 and Q2. Still, the loans to households provided by financial intermediaries such as securities firms, special purpose companies, and cash lenders increased 4.1 trillion won (US$3.7 billion) during the same period, which was 2.4 trillion won (US$2.1 billion) less than a quarter earlier.
The sales on credit fell 600 billion won (US$536 million) to 53.3 trillion won (US$47.7 billion) as the government had announced new regulations on credit cards in October last year and revised the tax law for the promotion of the use of debit cards. Credit card companies’ sales on credit had dropped by 3.5 trillion won (US$3.1 billion) in Q1 and continued the downward movement by 500 billion won (US$446 million) in the following quarter.
Nevertheless, household debt is likely to surpass the 1,000 trillion won (US$895.5 billion) mark sooner or later. In general, household debt can be divided into credit to households announced by the central bank and personal debt related to cash flow. The liabilities of owner operators and non-profit organizations are included in the former category. The former is at approximately 980 trillion won (US$877 billion) at present, but personal debt already broke the 1,000 trillion won mark three years ago to amount to 1,158.1 trillion won (US$1.0353 trillion). International agencies count in personal debt rather than credit to households in calculating the household debt.
“Household loan data has shown a trend in which the size increases particularly in the second quarter of each year due to housing loans taken out by those who move to new houses, and in the fourth quarter for autumn moving season and the year-end effect,” said deputy manager Lee Jae-ki at the Economic Statistics Department of the Bank of Korea. Hyundai Research Institute researcher Park Deok-bae advised, “The government would find it wise to focus on the stabilization of the housing rental price so that the size of deposit loans can be limited to some extent.”