Historical Highest Again
Household debt from banks, savings banks, and mutual funds reached another historical high. The increase in household debt from January to July this year more than tripled compared to the same period last year. Especially as other loans such as negative accounts from non-monetary institutions are growing rapidly, worries increase. The increase in other loans from non-monetary institutions in July was 1.6 trillion won (US$1.5 billion), over five times greater than banks (300 billion won, US$289 million).
The Bank of Korea (BOK) announced on Sept. 5 that the household loan balance of depository financial institutions was 711 trillion won (US$685 billion) at the end of July, a 5.7 trillion (US$5.5 billion) increase from June. Housing mortgage loans and other loans increased by 3.9 trillion won (US$3.7 billion) and 1.9 trillion won (US$1.8 billion), respectively, during the month of July.
After reaching a new high mark (687.1864 trillion won, US$663.6228 billion) at the end of December last year, household debt decreased slightly in January. However, the debt started to increase again in February and has marked new historical highs every month since.
The problem is that negative signals are detected in the trends of household loans.
First of all, household loans are increasing at a much faster speed. The net increase in accumulated household loans from January to July was 23.8 trillion won (US$23.0 billion), more than three times greater than the same period last year (7.7 trillion won, US$7.4 billion). Furthermore, an increase of loans in the July holiday season, when demand was relatively low, was almost equivalent to June (5.9083 trillion won, US$5.6975 billion). Compared to the same month last year, the increase in loan balances grew 5.8 percent in June and 6.5 percent in July. The increase during July was the historical highest since the statistics system first started in October 2003.
Household loans are likely to grow continuously afterwards, since real estate deregulations, including the loan-to-value ratio (LTV) and debt-to-income ratio (DTI), became effective in August, and the standard interest rate has lowered. Lee Jae-gi, senior manager of the economic statistics department at BOK, said, “We need to wait and see how things will go in the future.”
Another worry is that other loans that are directly connected to living are rapidly increasing, centered on non-monetary institutions. Among the total increase in other loans (1.9 trillion won, US$1.8 billion), only 300 billion won (US$289 million) increased in banks. The remaining 1.6 trillion won (US$1.5 billion) was raised in non-monetary institutions such as savings banks and mutual funds. The accumulated amount of other loans from banks decreased by 700 billion won (US$675 million) in July, but a total of 6.6 trillion won (US$6.43 billion) of loans were raised in non-monetary institutions. This is 2.5 trillion won (US$2.4 billion) greater than the net increase during the same period last year (4.1 trillion won, US$3.9 billion).
If loans from non-monetary institutions grow, usually regional loans increase at a faster pace. However, this trend is changing. Loans in metropolitan areas increased by 2.5 trillion won (US$2.4 billion) to 430.7 trillion won (US$415.9 billion) in July. This is greater than the increase in June (2.3 trillion won, US$2.2 billion). On the other hand, regional loans increased by 3.3 trillion won (US$3.1 billion), about 300 billion won (US$289 million) less than the increase in July. Some say that this trend indicates that real estate revitalization policies are becoming effective, starting from the metropolitan areas.