Korean Household Loans Soared in First Half This Year

The Bank of Korea announced on July 17 that depository institutions in South Korea recorded a household loan balance of 956.1731 trillion won (US$83.14 billion) at the end of May this year, up 3.9% compared to the end of last year. The increment for the period was 36.2098 trillion won (US$31.48 billion) in value whereas the increment between the end of 2014 and the end of May 2015 had been 29.5753 trillion won (US$22.23 billion). The household loan balance increased by 6.6174 trillion won (US$5.75 billion) last month as well and the increment for the first half of this year totaled 42.8272 trillion won (US$32.74 billion), exceeding that for the first half of last year by a margin of more than three trillion won.

Such a rapid increase in household loans can be attributed to snowballing non-bank loans. Specifically, the amount of household loans from banks increased 16.7991 trillion won (US$14.60 billion) between January and May this year to show a year-on-year decrease of 7.5%. The amount of mortgage loans from the Korea Housing Finance Corporation included in the household loan calculation fell 28% from a year earlier to 5.2215 trillion won (US$4.54 billion), too. In contrast, that from non-bank depository institutions soared by 14.1891 trillion won (US$12.33 billion) during the period while the increment for the same period of last year had been as small as 4.1721 trillion won (US$3.62 billion).

It seems that this is because South Korean banks have applied stricter assessment criteria to mortgage loan customers since February this year. The increment is likely to be much greater than the specific figure when those associated with insurers, credit card companies, securities firms and loan sharks, which are not categorized as depository institutions, are included in the calculation.

The quality of the loans is deteriorating as well. Compared to bank loans, non-bank loans are characterized by not only higher lending rates but also borrowers’ much lower ability for repayment. Borrowers in the country who have loans at three or more non-bank depository institutions recorded a total lending of 128.9 trillion won (US$11.2 billion) as of the end of March this year, up 14.9% from a year ago.