Bank of Korea Releases "Provisional Household Credit for Q1 2025"
Household Credit Up 2.8 Trillion Won from Previous Quarter... Growth Rate Slows
Increase in Housing Transactions in February and March to Be Temporarily Reflected in Q2 Mortgage Loans
Household Debt Ratio Expected to Continue Downward Stabilization in First Half of the Year
In the first quarter of this year, household credit (debt) in South Korea reached a new all-time high of 1,928.7 trillion won. However, the rate of increase slowed significantly compared to the previous quarter. This was due to a smaller increase in mortgage loans, as well as a larger decrease in other loans, as many households used their year-beginning bonuses to pay off credit loans. The expansion of mortgage loans resulting from increased housing transactions following the lifting of land transaction permit zones in Seoul in February is expected to be reflected in the second quarter. However, as housing transactions decreased again after the re-designation of these zones, the slowdown in the growth of household debt is expected to continue throughout the first half of the year.
According to the "Provisional Household Credit for Q1 2025" released by the Bank of Korea on May 20, the outstanding balance of household credit at the end of the first quarter stood at 1,928.7 trillion won, up 2.8 trillion won from the previous quarter. This is a much smaller increase compared to the 11.6 trillion won rise in the previous quarter. Household credit is a comprehensive measure of household debt, including loans from banks, insurance companies, and loan companies, as well as credit card spending (sales credit) before settlement.
South Korea's household credit decreased by 3.1 trillion won in the first quarter of last year, but then turned to an increase of 13.4 trillion won in the second quarter. This upward trend continued, with increases of 18.5 trillion won in the third quarter, 11.6 trillion won in the fourth quarter, and 2.8 trillion won in the first quarter of this year.
Excluding credit card payments (sales credit), the outstanding balance of household loans at the end of the first quarter was 1,810.3 trillion won, up 4.7 trillion won from the previous quarter. Again, this was a smaller increase compared to the 9.1 trillion won rise in the previous quarter. Mortgage loans in the first quarter increased by 9.7 trillion won to 1,133.5 trillion won, a slower pace than the 11.7 trillion won increase in the previous quarter. As mortgage loans typically lag housing transactions by two to three months, the subdued housing market at the end of last year and the beginning of this year affected the figures. However, with a sharp increase in housing transactions in Seoul in February and March, the growth of mortgage loans is expected to be larger in the second quarter.
Other loans decreased by 4.9 trillion won from the previous quarter to 676.7 trillion won. The decrease was driven by factors such as households repaying credit loans with year-beginning bonuses. Other loans have been on a downward trend since the fourth quarter of 2021. Kim Minsoo, Head of the Financial Statistics Team at the Economic Statistics Department 1 of the Bank of Korea, explained, "Due to the implementation of the Debt Service Ratio (DSR), short-term credit loans are being converted to mortgage loans, leading to a decline in other loans that include credit loans."
By lending channel, the outstanding balance of household loans at deposit banks stood at 974.5 trillion won, an increase of 8.4 trillion won from the previous quarter. The increase was larger than the 6.9 trillion won rise in the previous quarter, mainly due to mortgage loans. The outstanding balance of household loans at non-bank deposit-taking institutions, such as mutual finance companies, mutual savings banks, and credit unions, was 311.3 trillion won, up 1 trillion won from the previous quarter. The outstanding balance of household loans at other financial institutions, such as insurance companies, securities firms, and asset securitization companies, was 524.5 trillion won, down 4.7 trillion won from the previous quarter, continuing the downward trend. This was due to factors such as net repayments related to the Housing and Urban Fund and the transfer (including securitization) of policy mortgages by the Korea Housing Finance Corporation.
The outstanding balance of sales credit (credit card payments) within household credit in the first quarter of this year was 118.5 trillion won, down 1.9 trillion won from the previous quarter, due to a reduction in credit card usage.
While an increase in mortgage loans is expected in the second quarter, considering the smaller increase in the first quarter, it is anticipated that the household debt ratio in the first half of the year will align with the government's and the Bank of Korea's goal of gradual and stable reduction. The household debt-to-nominal GDP ratio stood at 90.1% at the end of last year, down 0.7 percentage points from 90.8% in the previous quarter. Kim stated, "There may be some advance demand before the implementation of the third stage of the stress DSR, but it is expected to stabilize quickly after implementation," adding, "The household debt-to-nominal GDP ratio in the first half of the year is expected to continue its downward stabilization trend."
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