Due to the government's real estate regulations, the increase in household debt in the fourth quarter last year was smaller than in the previous quarter. Following the third quarter, the growth slowed for a second straight quarter. The Bank of Korea said the slowdown in household debt is likely to continue for the time being as the government's stance on managing household loans remains in place.
According to the Bank of Korea on the 20th, as of the end of the fourth quarter last year, Korea's household credit (household debt) balance was 1,978.8 trillion won. That was up 14 trillion won from the end of the previous quarter.
Household credit is a comprehensive liability indicator that combines loans that households receive from financial institutions such as banks and insurers (household loans) with sales credit, including credit card spending. The Bank of Korea has released related statistics since the fourth quarter of 2002.
Household credit rose 25 trillion won in the second quarter last year, the biggest increase since the third quarter of 2021 (+35 trillion won). But the increase shrank to 14.8 trillion won in the third quarter, and the slowdown continued into the fourth quarter.
The slowdown was largely due to a sharp narrowing in the increase of mortgage loan balances. The increase in mortgage loans plunged from 12.4 trillion won in the third quarter to 7.3 trillion won in the fourth quarter. This is seen as the result of the government designating all of Seoul and parts of Gyeonggi on Oct. 15 last year as land transaction permit zones and restricting loans for dwellings priced above 1.5 billion won.
However, as banks tightened management of household loans, a "balloon effect" emerged with other loans increasing, offsetting part of the decline. Other loans swung from a 500 billion won decrease in the third quarter last year to a 3.8 trillion won increase in the fourth quarter. This was due to a rise in credit loans by deposit banks and a smaller decline in loans by insurers and specialized credit finance companies.
Sales credit totaled 126 trillion won, up 2.8 trillion won from the previous quarter. Following the third quarter last year (+2.9 trillion won), it increased for a second straight quarter. Credit card spending expanded from 196.9 trillion won in the second quarter to 203.2 trillion won in the third quarter and 204.3 trillion won in the fourth quarter, leading the rise.
The Bank of Korea also expected the ratio of household debt to gross domestic product (GDP) to decline as the growth of household credit slows. As of the third quarter last year, the ratio of household debt to nominal GDP was 89.3%, down 0.4 percentage points from the previous quarter. That was the lowest level since the third quarter of 2019 (88.3%).
Lee Hye-young, head of the financial statistics team at the Bank of Korea, said, "Last year's household credit growth rate was 2.9%, and the cumulative nominal GDP growth rate through the third quarter was in the high-3% range," adding, "Considering this, the household debt ratio likely fell year over year last year as well." Lee added, "This year, too, the government's stance of tightening management of household debt continues, so the household debt ratio is unlikely to rise significantly."