S. Korea's sees largest ever annual increase in household bank loans

Real estate, stock purchases, and pandemic all cited as factors

A loan desk at a bank. (Yonhap News)

For the first time, South Korea’s annual increase in household bank loans passed 100 trillion won (US$91.03 billion) in 2020. The new record is attributed to people seeking funds for housing purchases and stock investment, as well as living expenses amid the COVID-19 pandemic.

According to data released by the Bank of Korea (BOK) on Jan. 14, the balance of household bank loans totaled 988.8 trillion won (US$900.21 billion) as of late 2020, an increase of 100.5 trillion won (US$91.5 billion) in the space of one year. It was the largest increase since statistics were first tallied in 2004, far surpassing the 78.2 trillion-won (US$71.19 billion) increase in 2015, when the Park Geun-hye administration relaxed loan regulations to revitalize the property market. The rate of increase has been steep: last year’s 10.2% rate of increase in household loans was the first two-digit rise in five years. Historically, it is the fourth highest, with previous rates of 12.2% in 2015, 11.5% in 2006, and 10.4% in 2005.

The category of “other loans,” mostly credit loans, also registered a record increase of 32.4 trillion won (US$29.5 billion). At 68.3 trillion won (US$62.18 billion), the increase in housing loans (including key money loans) was the highest since 2015, when it totaled 70.3 trillion won (US$64 billion).

“The increase in loans appears to reflect a combination of factors including more housing transactions, rising key money deposits, stock purchases, and people pressed for cash during the pandemic,” said Yoon Ok-ja, a director with the BOK’s financial market affairs team.

Data released the same day by the Financial Supervisory Service (FSS) showed an increase of 112 trillion won (US$101.97 billion) in household loans last year through all financial institutions, including non-banking financial companies. The number was roughly double the 56.2 trillion-won (US$51.17 billion) increase in 2019.

In December 2020, household bank loans increased by 6.6 trillion won (US$6.01 billion), or less than half the historic high of 13.7 trillion won (US$12.47 billion) recorded in November. The increase in “other loans” (400 billion won, or US$364.2 million) fell sharply as the government implemented measures to manage credit loans. In contrast, loans related to housing rose by 6.3 trillion won (US$5.74 billion) — the highest December increase yet recorded. At 8.5 trillion won (US$7.74 billion), the increase in household loans for all financial institutions was down significantly from 18.7 trillion won (US$17.02 billion) in November.

Business loans increased by 107.4 trillion won (US$97.78 billion) last year in the biggest rise since statistics were first tallied in 2009. In December, they declined by 5.6 trillion won (US$5.1 billion), their first decrease in a year. The reversal reflected lump sum repayments of loans by companies to manage financial soundness for the end of the year, as well as banks writing off bad debt. But loans to individual business owners continued to increase, climbing by 1.9 trillion won (US$1.73 billion) last month amid demand for funds among small enterprises.

Experts predicted the increase in bank loans would drop off this year. In addition to more stringent standards for household credit loans, preemptive loan demand is also expected to decrease as the COVID-19 spread weakens. But observers also said that with market liquidity expanding and asset prices rising, the increase in loans is unlikely to drop off during the first half of the year.

Financial authorities said on Jan. 14 that measures for “advancement in household debt” would be developed in the first quarter of 2021 to establish review procedures centering on ability to repay, with efforts to achieve a “soft landing” for household debt through the gradual adoption of debt service ratio (DSR) management standards at the borrower level.

By Han Gwang-deok, finance correspondent

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