A customer is receiving counseling at a loan window at a commercial bank branch in Seoul. /Photo = News 1
Household debt (household credit) exceeded 1,800 trillion won. This is the result of an increase of 170 trillion won, the largest ever in one year. The per capita debt is close to 35 million won. It is interpreted as the result of households significantly increasing their borrowings to purchase stocks, real estate and cryptocurrency.
According to the ‘Household Credit (Provisional) for the second quarter of 2021’ released by the Bank of Korea on the 24th, household debt (household credit) stood at 1805.9 trillion won at the end of June, 1686,000 trillion won (an increase rate of 10.3%) compared to the end of June last year. ) increased. Household credit is the sum of sales credit, such as loans from banks and lenders, and credit card installments. Household credit growth is at an all-time high. Compared to the end of March this year, it increased by 41.2 trillion won. From the end of June 2017, when the Moon Jae-in administration took office, to the end of June 2021, household debt increased by 418.1 trillion won (an increase rate of 30.1%). Considering Korea’s population (median estimate, 5,1822,000 people), it means that each person carries a debt of 34.9 million won.
Among household loans, mortgage loans stood at 948.3 trillion won, up 75.2 trillion won (8.6%) in one year. The increase was the largest since the fourth quarter of 2016 (77.4 trillion won). Other loans, including credit loans, increased by 84 trillion won to 757 trillion won, the largest increase ever.
It is analyzed that this is the result of a large increase in borrowings to purchase stocks and real estate by households. The sharp increase in credit loans is the result of a sharp increase in the amount of subscription funds for public offering stocks. The general subscription of SK IE Technology (SKIET) public offering stocks made on April 28-29 attracted an all-time high of 80.9 trillion won. According to the Bank of Korea, the nominal market capitalization of housing, which is the sum of domestic housing prices (including housing and attached land), stood at 5721.667 trillion won at the end of last year. It increased by 13.1% (662,476 trillion won) from the end of 2019. This is the highest growth rate since 2006 (15.5%) during the Roh Moo-hyun administration.
By generation, there is also an analysis that the 2030 generation is leading the recent increase in household debt. As a result of estimates based on the Bank of Korea’s household debt database (DB) by the Korea Economic Daily, at the end of the first quarter of this year, the balance of loans to financial companies in their 20s and 30s stood at 446.5 trillion won. It increased by 55.38 trillion won (14.1%) from the end of the first quarter of last year. The debt growth rate in 2030 greatly exceeded the household debt growth rate (9.5-10.3%) in the first and second quarters of this year.
The credit risk of households is also increasing as loan interest rates have risen sharply in the past year in anticipation of a base rate hike. The average interest rate on household loans (new transactions) at deposit banks stayed at an all-time low of 2.59% in the third quarter of 2020, but is rising to 2.72% in the fourth quarter, 2.84% in the first quarter of 2021, and 2.91% in the second quarter. . As household debt grows close to the level of nominal gross domestic product (GDP, 1933,152.4 billion won as of the end of last year), the burden of repaying household debt is also increasing. The ratio of household credit to nominal GDP at the end of the second quarter of this year is expected to reach 90%.
There are also warnings that soaring household debt could gnaw economic growth. The Bank of Korea evaluated in the ‘Monetary and Credit Policy Report for June 2021’ released in June, “If household debt exceeds the appropriate level, the burden of repaying debt increases, which can tighten household spending.” In the BIS report (No. 607) published in 2017, Shim Il-hyeok, head of Asia-Pacific economic and financial markets at the Bank for International Settlements (BIS) also said, “The threshold of household debt is 80% of nominal GDP, and if it exceeds the threshold, it will have a negative impact on economic growth.” and analyzed.
To prevent household debt, the government has introduced various macro-prudential measures. In April, the Financial Services Commission came up with measures to regulate household debt, including the ‘household debt management plan’, which aims to lower the growth rate of household credit from 8% to the level of 2019 (4% level) just before Corona 19 by next year. However, the rapid increase in household debt has not been dampened, with the growth rate soaring to 10% in the second quarter.
There are also growing calls for an interest rate hike at the Monetary Policy Committee of the Bank of Korea to be held on the 26th to curb the growth rate of household debt. Lee Ho-seung, head of the Blue House’s policy office, said, “The growth rate of household debt rose to 8 to 9 percent between last year and the first half of this year.
By Kim Ik-hwan, staff reporter [email protected]
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