Household loans grow by most in 4 months

South Korean banks’ household loans grew by the most in four months in October on a rise in mortgage lending, the central bank said Thursday, complicating the government’s efforts to curb growing household debt.

Local banks’ household loans, including home-backed and credit loans, reached 451.8 trillion won ($398 billion) as of the end of October, up 3.2 trillion won from the previous month, according to the Bank of Korea.

The October monthly growth marked the largest expansion since such loans increased by 3.4 trillion won in June, the BOK added.

The growth of bank mortgage loans jumped last month mainly because people took out loans to pay intermediate payments for apartments, but it remains to be seen whether home-backed lending will continue to grow quickly, said Kim Hyun-kee, a senior economist at the BOK.

Banks’ mortgage lending grew by 2.4 trillion won on-month to 302.1 trillion won as of end-October, accelerating from a 1.1 trillion won expansion tallied in September. The October growth marked the largest monthly expansion since 2.4 trillion won growth recorded in April.

South Korea is battling growing household debt, which reached 876.3 trillion won as of the end of June. Households’ high indebtedness is feared to constrain their ability to spend, curbing economic growth.

The regulator announced steps to stem household debt in June, but the growth of household debt accelerated in July and August on the back of sustained loan growth in the non-bank sector.

Meanwhile, South Korean banks’ corporate lending grew at the sharpest pace in six months in October on the back of a sharp gain in lending to smaller firms, the central bank added.

Corporate loans by local banks rose 7.4 trillion won on-month to 561.1 trillion won, quickening from a 4.8 trillion won expansion. It marked the largest monthly gain since such lending grew 9 trillion won in April, the BOK noted.

Bank lending to large firms grew 3.1 trillion won on-month to 111.8 trillion won and lending to smaller firms expanded 4.4 trillion won to 449.3 trillion won.

The data came one day before the BOK holds its monthly rate-review session. Analysts forecast that the BOK is likely to freeze the key interest rate at 3.25 percent for the fifth straight month on risks from the eurozone debt crisis. 

(Yonhap News)