Household borrowing soars to 13-year high

South Korea’s household mortgage debt more than tripled in the first quarter of this year, compared with the same period a year ago, according to data by the banking sector and the Financial Supervisory Service.

Mortgage debt hit 323.5 trillion won at the end of March, up more than 7 trillion won from 316.5 trillion won at the end of last year, according to data from seven local commercial lenders.

This marks the first time the increase has reached over 7 trillion won, further raising concerns over high household debt. The rate stood at some 2 trillion won in the first quarter of last year.

Increased mortgages, fueled by the government’s deregulation of loan qualifications and the central bank’s key rate cuts, have further spurred household debt and households’ delinquency rate.

In February alone, the outstanding amount of household loans, including mortgages, stood at 522 trillion won, up 3.4 trillion won from the previous month. This marks the highest monthly increase in 13 years. In January, the increase rate was about 400 billion won.

Woori Bank extended loans the most with 2.2 trillion won, followed by Shinhan Bank with 1.9 trillion won and the Korea Exchange Bank with 1.5 trillion won, according to the data.

Market observers said the abrupt growth of household borrowing, including mortgages during the period between January and February, posed a downside risk to the economy.

Consumers generally used this period to repay loans with their year-end bonuses and tax refunds, rather than borrow money from banks. Household spending also typically decreased during the cold season.

The government has reiterated Korea’s household debt is manageable.

Despite growing criticism against the government’s belated move to tame rising debt, Yim Jong-yong, chairman of the Financial Services Commission, said it did not plan to strengthen regulatory loan requirements such as the debt-to-income and loan-to-value limits.

“It is time to wait and monitor, given that it has only been seven months since the (deregulation) went into effect,” Yim said during his inaugural press conference on March 17.

The FSC launched the relief loan plans ― state-led measures that allow household borrowers with adjustable rate mortgages to transfer to low, fixed-rate loans.

The measures affected a larger number of household borrowers than the regulator initially estimated.

Korean banks processed a total of 189,184 loan transfer requests, or about 19.9 trillion won, during the four-day relief from March 24.

The government launched a second round on March 30, handling loan transfers worth about 2.2 trillion won.

By Chung Joo-won (joowonc@heraldcorp.com)