Snowballing Household Debts
The amount of bank loans to households last month increased by more than 6 trillion won (US$5.32 billion) from a month earlier. Accordingly, the effectiveness of the government’s measures to rein in the nation’s snowballing household debt is expected to be at the heart of the debate.
According to a report titled the “Financial Market Trend in Sept. 2016” released by the Bank of Korea (BOK) on Oct. 12, household loans by 16 banks in Korea stood at 688.4 trillion won (US$610.28 billion) at the end of last month, up 6.1 trillion won (US$5.41 billion), including mortgage loans offered by the Korea Housing Finance Corp., from August. The increase was the second-highest September figure after 6.2 trillion won (US$5.5 billion) of the last year since records began being kept in their current form in 2008. It is 3.8 times higher than the average debt increase in September between 2010 and 2014, which was 1.6 trillion won (US$1.42 billion).
The increase in September was smaller than that of August, which was 8.6 trillion won (US$7.62 billion). However, it is hard to think that household debts show a slower growth. This is because September typically sees lower demand for loans due to special bonuses given out for the Chuseok harvest holiday. Household debts last year also decreased from 7.7 trillion won (US$6.83 billion) in August to 6.2 trillion won (US$5.5 billion) in September for the same reason.
The increase in bank loans to households last month was largely due to mortgage loans. Mortgage loan debts in September this year stood at 517.9 trillion won (US$459.13 billion), up 5.3 trillion won (US$4.7 billion) from the previous month. Its increase in September was smaller than 6 trillion won (US$5.32 billion) of last year, but it is 2.8 times larger than the average mortgage loan increase in September between 2010 and 2014, which was 1.9 trillion won (US$1.68 billion).
Other debts such as overdraft loans and deposit and installment savings loans, excluding mortgage loans, went up by 800 billion won (US$709.22 million) to 169.7 trillion won (US$150.44 billion).
The increase in overdraft loans in September dropped from that of August due to incentives amid the Chuseok holiday. The figure grew from the same period last year because of the increase in living expenses and housing expenses, according to the BOK. On the other hand, businesses are reducing the loan scale. Corporate lending recorded 752.7 trillion won (US$667.29 billion) in September, growing by 1.8 trillion won (US$1.6 billion) from the previous month. It is the lowest increase in September since the BOK began compiling relevant data in 2010. This is mainly due to the fact that banks readjusted non-performing loans at the end of the quarter. However, it also has to do with firms’ decision to reduce investment owing to the uncertainty over the economy at home and abroad.