The Bank of Korea Expects Continued Low Growth in Household Loans in the Financial Sector

Household Loans Increase Last Year Mainly Due to Mortgage Loans

A real estate mortgage loan interest rate board is posted on the exterior wall of a branch of a major bank in Seoul. Photo by Jinhyung Kang aymsdream@

It is forecasted that household loans in the financial sector will continue to grow at a low rate for the time being.

On the 14th, the Bank of Korea announced in its Monetary and Credit Policy Report that household loans in the financial sector increased by 11.5 trillion won compared to the previous year. The annual growth rate was only 0.7%, which is the lowest level since the related statistics began to be compiled in 2008, except for 2022.

Last year's increase in household loans was led by mortgage loans. This is explained by the significant expansion of loan limits per borrower due to the easing of loan regulations, and the fact that mortgage loans became more favorable than unsecured loans in terms of loan limits and interest rates, leading to an expansion of financing through mortgage loans when purchasing homes.

Household loans in the non-bank sector have been decreasing for 15 consecutive months since November 2022. The decline was centered on credit cooperatives such as mutual finance institutions, caused by relatively high interest rates, debt service ratio (DSR) regulations, and sluggish local real estate markets.

The Bank of Korea assessed that future housing market conditions are highly uncertain due to mixed upward and downward factors. Persistently high housing prices and concerns over real estate project financing (PF) defaults are expected to slow the recovery of housing purchase sentiment. Expectations of financial condition easing, development benefits in some areas, and a reduction in housing supply in the metropolitan area are anticipated to act as upward factors for housing market recovery.

Considering the overall conditions of household loans, the Bank of Korea expects that household loans in the financial sector will continue to grow at a low rate for the time being, and accordingly, the household debt-to-GDP ratio is also expected to show a gradual downward trend.