Banks’ household loans up for 10th month in January amid high rates

Household loans extended by banks in South Korea rose for the 10th straight month in January, led by rising home-backed loans, central bank data showed Wednesday, amid worries that highly indebted households could pose a risk to Asia’s fourth-largest economy amid high borrowing costs.

Banks’ outstanding household loans had come to 1,098.4 trillion won (US$820 billion) as of end-January, up 3.4 trillion won from a month earlier, according to the data from the Bank of Korea (BOK).

The January gain accelerated from a 3.1 trillion-won rise the previous month and marked an on-month increase for 10 months in a row, the data showed.

Banks’ home-backed loans rose 4.9 trillion won to 85.53 trillion won last month, decelerating from a 5.1 trillion-won on-month gain the previous month, while unsecured and other types of loans fell 1.5 trillion won to 241.9 trillion won over the cited period, according to the data.

Policymakers remained worried over a spike in household debts, which could sap further private spending.

Borrowing costs in Asia’s fourth-largest economy remain high following the BOK’s aggressive monetary tightening aimed at bringing surging inflation under control.

In January, South Korea’s central bank held its key interest rate steady at 3.5 percent amid a slowdown in growth and moderating inflation.

This marked the eighth straight time that the BOK has stood pat following rate freezes since February last year. The rate freezes came after the BOK delivered seven consecutive rate hikes from April 2022 to January 2023.

Banks’ loans to companies also rose 6.7 trillion won last month, a turnaround from the previous month’s 5.9 trillion-won fall, the data showed.

Meanwhile, the financial regulator said household loans extended by all financial institutions, including savings banks, insurance firms and brokerages, added 800 billion won from a month earlier in January, slightly accelerating from a 200 billion-won on-month increase tallied in December.

Home-backed loans added 4.1 trillion won, slowing from a 5 trillion-won increase in December, according to the Financial Services Commission.

Non-mortgage loans dropped by 3.3 trillion won in January, also slowing from a 4.8 trillion-won decrease the month before.