Household Loan Balance Hits Another Record High... Significant Increase in Bank Mortgage Loans

KRW 1,068.1 Trillion as of Late July

Last month, household loans from banks increased significantly, mainly driven by mortgage loans, marking the largest monthly increase since September 2021. The outstanding balance of household loans at banks also reached an all-time high following the previous month, bringing the rapidly rising household debt to the forefront.

According to the Financial Market Trends for July released by the Bank of Korea on the 9th, the outstanding balance of household loans at banks reached a record high of 1,068.1 trillion won. Following a nearly 6 trillion won surge in June, which was the highest ever, the sharp upward trend continued.

The increase in household loans at banks last month was 6 trillion won, up from 5.8 trillion won in June. This is the largest monthly increase since the 6.4 trillion won rise in September 2021.

Mortgage loans increased by 6 trillion won as demand for jeonse (long-term deposit lease) funds slowed but demand for home purchase-related funds continued. This marked a significant increase following the 6.9 trillion won rise in the previous month.

Yoon Ok-ja, Deputy Head of the Market General Team at the Bank of Korea’s Financial Market Department, explained, "Looking at the housing transaction situation, apartment sales volume showed a recovery trend until June, which leads to funding demand with a lag of 2 to 3 months. As demand for home purchase-related funds continues, mortgage loans increased significantly following the previous month."

Bank corporate loans expanded in scale compared to the previous month due to seasonal factors and banks’ accommodative lending attitudes. While the increase in corporate loans had slowed to 7.8 trillion won in May and 5.5 trillion won in June, it rose again to 8.7 trillion won in July.

Loans to large corporations increased by 3.8 trillion won, expanding the growth compared to the previous month. The increase was driven by quarter-end lump-sum repayments being re-borrowed and demand for corporate working capital. The Bank of Korea stated, "The 8.7 trillion won increase in bank corporate loans in July is the third largest for any July since the statistical flash report began in June 2009." The record largest increase was 12.2 trillion won in July last year.

Bank deposits sharply decreased by 23.1 trillion won last month. Demand deposits fell by 36.6 trillion won as corporate funds were withdrawn due to the disappearance of seasonal factors from the previous month and value-added tax payments. Bank deposits had surged by 38.4 trillion won in June, which is interpreted as a temporary increase caused by expanded corporate deposits for managing financial ratios and securing settlement funds at the end of the quarter.

Time deposits increased by 12.3 trillion won, mainly driven by household funds.

Regarding the outlook for August, Deputy Head Yoon said, "Variables affecting household loans include interest rates, housing market conditions, banks’ lending attitudes, and seasonal patterns. It is difficult to predict how the situation will change going forward, and since loan interest rates remain at high levels, we need to observe whether the increase in household loans will continue."

[Image source=Yonhap News]