Due to Loan Cliff Anxiety, Borrowed in Advance and Deposited in a 'Parking Account'

Household Debt Increase Halved in One Month
But Mortgage Loans Continue to Rise Sharply
Demand Deposits, a Waiting Fund, Also Surge

On the 1st, a bank in downtown Seoul where financial authorities are implementing high-intensity loan regulations. / Photo by Moon Honam munonam@

[Asia Economy Reporter Park Sun-mi] As of last month, the increase in the base interest rate combined with strengthened household loan management measures caused the growth in household debt to be halved in just one month. Most of the money borrowed from banks flowed into parking accounts, which serve as temporary holding places for funds. This reflects the increase in financial consumers who took out loans in advance even if they did not immediately need them, as tighter household loan regulations are expected to spread comprehensively in the future.

According to the financial sector on the 2nd, the outstanding household loans at the end of August from the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 698.8149 trillion KRW, an increase of only 3.5067 trillion KRW compared to 695.3082 trillion KRW at the end of July. This is about half of the net increase of 6.2009 trillion KRW recorded in July.

The sharp decline in the increase of household loans is largely due to banks raising loan interest rates and reducing credit limits, thereby strengthening credit loan management. The outstanding credit loans at the five major banks at the end of August were 140.8942 trillion KRW, a net increase of just 1.2 billion KRW from 140.893 trillion KRW in the previous month. This contrasts with July, when credit loan balances increased by 1.8636 trillion KRW due to large-scale public offering subscriptions.

On the other hand, mortgage loans continued to rise.

The outstanding mortgage loan balance in August was 493.4148 trillion KRW, up 3.8311 trillion KRW from 489.5837 trillion KRW in July. This marks the largest increase this year and the second consecutive month with an increase approaching 4 trillion KRW, following July's increase of 3.8237 trillion KRW.

This is interpreted as partly reflecting demand to secure housing funds in advance before the base interest rate hike is fully reflected, amid the ongoing high prices of home sales and jeonse (long-term lease) ahead of the autumn moving season. In fact, as NH Nonghyup Bank stopped accepting new mortgage loan applications after the 23rd of last month and other banks began restricting loans, financial consumers formed a mood to secure funds slightly earlier than planned to cover interim payments, final payments, or living expenses.

The psychology of wanting to take out loans in advance while they are still available, combined with the government's strengthened loan regulations and increased uncertainty in domestic and international financial markets, led to a surge in demand deposit accounts, which allow funds to be withdrawn and deposited at any time. The outstanding demand deposits at the five major banks at the end of August surged by 11.5774 trillion KRW to 685.1869 trillion KRW compared to the previous month. This is the exact opposite trend from July, when demand deposits decreased by 3.9728 trillion KRW.

When the base interest rate rises, banks immediately raise deposit interest rates, which also drove demand for time deposits. The outstanding time deposits at the end of August increased by 7.9422 trillion KRW from the previous month to 632.0696 trillion KRW, marking the highest level in eight months. Woori Bank and Nonghyup Bank raised their savings and deposit interest rates by up to 0.30 percentage points and 0.35 percentage points respectively starting from the 1st of this month, and banks are collectively raising savings and deposit interest rates this week.

A representative from a commercial bank explained, "Although the outstanding balance of credit loans did not increase significantly, the amount of new loans doubled in one month. In August, when household loan management measures were intensified, some consumers repaid debts due to interest rate hikes and loan limit reductions, while on the other hand, there was a surge in speculative demand to take out loans in advance."