By Kim Rahn
Korea’s household debt has risen sharply to surpass 1 quadrillion won ($931.7 billion), mainly due to increased mortgage lending, the Bank of Korea (BOK) said Tuesday.
According to data from the central bank, the nation’s total household debt was 1.0213 quadrillion won in December.
It was up 27.7 trillion won from three months earlier, and the quarterly gain was the fastest since the bank started collecting data in 2002.
Household debt includes credit purchases and loans for households extended by financial companies including commercial banks, savings banks, credit card firms, insurers and brokerages.
Nine years ago, household debt was 494.2 trillion won, about half the current figure.
Its annual quarterly growth rose from 47.6 trillion won in 2012 to 57.5 trillion won in 2013, and the fourth-quarter increase was the largest ever.
“The household debt growth accelerated in the fourth quarter, as mortgage lending grew sharply ahead of the end of the government’s tax breaks on home purchases,” a BOK official said.
From April, the government offered tax breaks for people who bought houses for the first time — the temporary benefit ended in December.
Household loans by banks increased 8.4 trillion won in the fourth quarter, a sharp rise from 2.1 trillion won in the third quarter. Of the 8.4 trillion won, 6.7 trillion won were mortgages, reaching 328.9 trillion won in total.
Credit purchases stood at 58.3 trillion won in December, up 3.7 trillion won from three months earlier. “This was from seasonal factors, as credit purchase usually rise at the end of a year,” the official said.
Korea’s household debt has been said to be the main drag on the nation’s economy, as highly indebted people reduce spending and thus domestic demand does not increase.
In 2012, a BOK report showed the ratio of household debt to disposable income was the largest ever at 136 percent, and the bank estimated the ratio in June 2013 at 137 percent.
The ratio was 103 percent in 2004 and has kept rising due to rapid growth in mortgages and the slow increase in disposable income.
Financial regulators also see it as a bad sign that debts held by self-employed people or people using second-tier financial institutions, such as savings bank, are growing, as they have a higher chance of failing to repay the loans.
The per-capita loan extended to self-employed people was 120 million won on average in March, threefold that extended to paid workers, 40 million won. Among the loans to them, the regulators suspect 60.7 trillion won, or 6 percent of the total household debt, may not be paid back.