Money supply accelerates, household loans slow: BOK

Korea’s money supply expanded at its fastest pace in five months in August and banks’ household loan growth slipped to an eight-month low in September, the Bank of Korea said on Wednesday.

The data came ahead of the central bank’s rate-setting meeting slated for Thursday amid widespread expectations that the benchmark rate would be frozen at 3.25 percent for the fourth straight month due to greater risks in the global economy.

M2, a narrow measure of the money supply, stood at 1,719.4 trillion won ($1.46 trillion) in August, up 4 percent from a year earlier, with bank lending keeping its solid pace.

The August data was the fastest growth since the 4.3 percent on-year expansion recorded in March.

“As for M2 figures in August, credit seems to have grown faster in the corporate sector in August,” said Kim Min-woo, an official at the BOK. “The broader measure, M1, also rose due to the interim payment of corporate taxes, which resulted in the greater amount in the savings account.”

M1 rose from 3.8 percent in July to 5.4 percent in August.

In a separate release, the BOK said that the country’s M2 is estimated to have grown somewhere within the low-4 percent range in September as bank lending’s growth overpowered a smaller surplus in the current account and foreign capital outflows.

Meanwhile, the recent regulator’s move to reduce household debt was reflected in the banks’ loans to households, which stood at 448.7 trillion won toward the end of September, up 600 billion won from a month earlier, according to the BOK data.

“Banks’ credit extension to households tumbled last month, partly due to the seasonal drop in revolving credits to customers,” said Lee Jung-hun, an official at the BOK.

The revolving credit rose 1.3 trillion won in August but the figure turned into a net decrease of 500 billion won in September as corporations handed out Chuseok holiday bonuses.

The household loan growth hit an eight-month low in September as local lenders scrambled to slash household loans to meet the government-set target of 0.6 percent monthly loan growth.

Korea is currently faced with mounting household debt, which came in at 876.3 trillion won at the end of June. Both local and foreign analysts continue to point out that the household loans should be dealt with in order to bolster its economy at a time when external factors, such as the eurozone sovereign debt crisis, are showing no signs of positive developments.

The BOK is set to hold its rate-setting meeting on Thursday while most analysts and economists expect the central bank to keep the rate intact, not only this month, but for the rest of the year at the least.

By Yang Sung-jin (insight@heraldcorp.com)