SEOUL: South Korea’s household credit climbed to a new high in the fourth quarter of 2015, data showed Wednesday, adding to concerns over fast-growing household debts that could pose serious threats should interest rates begin trending higher.
Household credit reached 1,207.0 trillion won (US$979.7 billion) as of end-December, breaching the 1,200 trillion won mark for the first time in the country’s history, according to the preliminary data from the Bank of Korea (BOK).
The total gained 41.1 trillion won from a revised 1,165.9 trillion won in the previous quarter, also marking the largest on-quarter growth since the central bank began compiling related data in 2002. From a year earlier, the amount spiked 11.2 percent.
Household credit represents total borrowing by households as it includes credit purchases as well as loans extended by financial institutions, such as banks and credit card firms. Household loans amounted to 1,141.8 trillion won as of end-December, up 3.6 percent or 39.4 trillion won from three months earlier. Credit purchases gained 2.7 percent or 1.7 trillion won to 65.1 trillion won over the cited period.
The jump in household debt was attributed to increased home-backed loans apparently prompted by low interest rates and a series of government measures aimed at revitalizing the property market.
“Household lending by deposit banks expanded at a greater speed than in the previous quarter as a rise in demand for collective loans caused by a boom in the market for apartments greatly pushed up home-backed loans,” the BOK said in a press release. In 2015, the number of home transactions here hit a fresh high of over 1.19 million, spiking 18.8 percent from the previous year.
Consequently, mortgage loans extended by commercial and savings banks here gained 22.2 trillion won on-quarter to 563.7 trillion won as of end-December, accelerating from a 14.3 trillion won increase in the previous quarter. In 2014, the government eased mortgage regulations such as loan-to-value and debt-to-income ratios in an attempt to help revitalize the real estate market.
The central bank too has kept its key interest rate frozen at a record low level of 1.5 percent since June 2015 as part of efforts to bolster growth, but apparently further encouraging borrowing by households at the same time.
