Korean Economy News
S. Korea’s household debt ballooned over $100 billion last year

By Boo Jang-won

South Korea’s household loans increased by a record 124 trillion won ($108.6 billion) last year as people were encouraged to capitalize on ultra-low interest rates to buy homes amid slew of deregulations in government efforts to inflate domestic demand against lethargic economy.

The outstanding loans extended to households amounted to 1,154.6 trillion won as of the end of December last year, up by 124 trillion won from 1,030.6 trillion won a year ago, the Bank of Korea (BOK) said on Wednesday.

It is the highest yearly increase, surpassing the previous peak of 110.1 trillion won set at the end of 2015. Bank loan regulations were tightened amid concerns for growth in household debt, but demand turned to non-banking sector.

Loans from commercial banks shrank by some 10 trillion won due to a tougher screening of borrowing qualifications, while those from savings banks, insurers and other alternative financial services with a lower bar to borrow money grew by more than 20 trillion won.

New bank loans extended households came to 68.8 trillion won last year, down by 12.0 percent from a net increase of 78.2 trillion won in 2015. In contrast, such loans provided by insurers, savings banks and other non-bank financial institutions snowballed by 55.1 trillion won, up 72.7 percent from a year ago.

The fall in new bank loans to households came after the government has introduced a series of measures to toughen regulations on bank lending to curb the country’s snowballing household debts, which were largely driven by a massive inflow of newly built apartments and banks’ excessive group loans amid the nation’s booming property market last year.

The property market entered a slack season toward the end of last year amid tougher regulations and signs of rises in interest rates.

But loans from non-banks are growing fast among borrowers with low credibility, which could pose burden from a rise in interest rates, a BOK official warned.

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