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Household debt keeps rising

Aug. 31, 2011 - 20:19 By

Household loans extended by South Korea’s financial institutions are set to jump by more than 5 trillion won ($4.66 billion) in August, an unusually high figure for a month of slow home debt, data showed Wednesday.

Financial authorities said household debt between Aug. 1-26 already reached 4.9 trillion won. Given that demand picks up toward the end of the month, the final tally is expected to easily surpass the 5 trillion won mark.

The rapid expansion of household debt in August has alarmed financial regulators as the nation’s economy is struggling to fight a slower-than-expected growth and external factors such as the debt woes in Europe pose a continued threat for Asia’s fourth-largest economy.

“The monthly debt could surpass 5 trillion won, or even reach 6 trillion won, as the last couple of days of a month usually see heavy volume of individual credit transactions at the banks,” said a Financial Supervisory Service official.

Financial regulators are keen to tame household loans, including mortgage lending and credit loans, as surging home indebtedness dampen consumer spending, which in turn undercut the country’s economy growth.

The pickup in household debt in August is now expected to increase the July-August total to near 10 trillion won. In June, the government announced a set of measures to reduce household loans in June, tightening banks’ loan-to-deposit ratios and mending banks’ lending practices. But the latest figures suggest that such efforts are not translating into an intended drop in household loans. 

Banks’ loan to households jumped 18.2 percent (2.6 trillion won) on-month this month, while non-banking institutions increased the loans by 9.5 percent (2.3 trillion won) compared with a month earlier.

The July-August household debt rose by 7.1 trillion won in 2006, 7.9 trillion won in 2007, 8.1 trillion won in 2008 and 9 trillion won in 2009 before declining to 6.8 trillion won last year.

The rise in household loans is fueled by mortgage-related loans and overdraft. Home lease, or “jeonse,” prices continue to rise despite the protracted slump in the housing market, while individuals are seeking to get loans via overdraft, a channel that is under less regulatory supervision.

The financial regulators are now considering additional measures to limit loan extension after observing the trend in the coming weeks, especially ahead of the Chuseok holiday in September.

By Yang Sung-jin (