At the end of the second quarter, household debt topped 2,000 trillion won for the first time on record as of the 19th. The outstanding loan balance increased by 25.9 trillion won in just three months. The increase was the largest since the third quarter of 2021 (34.8 trillion won), when household debt surged due to rate cuts during the pandemic.
Analysts said the rise was due to an increase in dwellings-related loans amid climbing home prices and a jump in "debt-financed investing" amid a stock market boom. With Government Bonds yields rising recently and the Bank of Korea (BOK) signaling an additional rate hike, some said the burden of loan repayment for the public could grow and domestic demand could weaken.
According to the Bank of Korea on the day, the outstanding loan balance of household credit stood at 1,,,019.8 trillion won at the end of the second quarter, up 25.9 trillion won from the end of the previous quarter. Household credit is the sum of household loans from financial institutions such as banks, insurers, savings banks, and mutual finance institutions, and amounts purchased on credit such as with credit cards.
The outstanding loan balance of household loans at the end of the second quarter was 1,891.3 trillion won, up 24.9 trillion won from the end of the previous quarter. The increase was the largest since the third quarter of 2021 (34.6 trillion won).
◇ Other loans such as overdraft accounts and unsecured loans surge... increased more than mortgage loans
Of the increase in household loans, more than half, or 12.8 trillion won, came from other loans. Other loans encompass all loans other than dwellings-related loans, including overdraft accounts and unsecured loans, loans secured by deposits, and auto installment plans and loans. The increase was the largest since the third quarter of 2021 (13.7 trillion won).
It was the first time since the second quarter of 2021 (dwellings 17.3 trillion won, other 23.8 trillion won) that the increase in other loans exceeded that of dwellings-related loans (12.2 trillion won). The increase in dwellings-related loans also expanded from 8.1 trillion won at the end of the first quarter to 12.2 trillion won at the end of the second quarter.
By lending institution, household loans at commercial banks decreased by 200 billion won at the end of the first quarter and then turned to an increase of 13.3 trillion won at the end of the second quarter. The increase in dwellings-related loans expanded from 300 billion won to 6.8 trillion won, and other loans turned from a decrease of 600 billion won to an increase of 6.5 trillion won. The increase in household loans at other financial institutions such as insurers and public officials' pension funds expanded from 5.5 trillion won to 8.6 trillion won.
In contrast, the increase in household loans at nonbank deposit-taking institutions such as savings banks, credit unions, and the Korean Federation of Community Credit Cooperatives (KFCC) narrowed from 8.2 trillion won to 3.1 trillion won.
Sales credit, including credit card payments, was 128.5 trillion won at the end of the second quarter, up 900 billion won from the end of the previous quarter. The increase narrowed from 1.4 trillion won at the end of the first quarter.
◇ Yields on 10- to 30-year Government Bonds rise to the mid- to high-4% range... could weigh on domestic demand recovery
Amid rising Treasury bond yields recently, the uptrend in household debt is raising concerns that households' repayment burdens could increase and the pace of domestic demand recovery could slow.
According to the Korea Financial Investment Association, yields on 10- to 30-year Treasury bonds rose from the high-3% range at the end of March to the mid- to high-4% range recently. Since prices spiked after the Middle East war, the Bank of Korea (BOK) raised the base rate in July to 2.7% from 2.5%, increasing the likelihood of another hike within the year. Concerns over fiscal deficits in major economies including the United States, Japan, and Europe have also pushed up Government Bonds yields.