Non-mortgage loans set to peak

By Kang Seung-woo

Household loans that exclude mortgages are expected to surpass a record 250 trillion won ($216.25 billion) by the end of the year, the central bank said Tuesday.

This means a rising amount of loans taken out to support daily livelihoods at a time of high inflation and a slumping global economy, analysts said. Worse, interest rates for borrowing have climbed back to the level of the global financial crisis, which is expected to increase debt burdens.

According to the Bank of Korea (BOK), the balance for miscellaneous loans that excluded home-equity loans from total household borrowing from the banking and non-banking sectors totaled 245.2 trillion won as of the end of September, up 9.1 percent from a year earlier.

Assuming the upcoming fourth-quarter borrowing matches last year’s 8.4 trillion won, the outstanding loans for 2011 are likely to break the 250 trillion won mark.

The miscellaneous borrowing includes demand deposit accounts with negative balances, unsecured loans and collateral loans based on deposits and installment savings.

Unlike home-backed loans, these loans are generally used to meet regular living expenses. These types of loans have risen sharply in both the banking and non-banking sectors.

Livelihood loans in the banking industry stood at 146.4 trillion won, up 5.1 percent from a year ago, but the gain is the biggest year-on-year since the 7.1 percent expansion tallied in the first quarter of 2009 during the global financial turmoil.

Loans from the non-banking sector that includes savings banks, mutual finance and credit cooperatives recorded 98.8 trillion won, a 15.7 percent increase from the same period of the previous year. A double-digit increase has been posted 21 straight months.

The BOK said debtors depended on miscellaneous loans that are easier to borrow than mortgages in order to meet their daily needs, as they face higher consumer prices.

The nation’s consumer price index rose 4.2 percent in November from a year earlier, increasing from a 3.6 percent year-on-year gain in October.

“We cannot find exactly where the loans are used, but the money appears to have been spent for tuition or living expenses,” said a BOK official.

The central bank has kept its key interest rate on hold for six months in a row, but interest rates for livelihood-related loans have seen a sharp upswing.

The annual interest rate for fresh unsecured loans stood at 8.27 percent in September for the first time since December 2008. In October, it also posted 8.22 percent.

In addition, the interest rate for microfinance below 5 million won recorded 7.02 percent per year in October.

The BOK said that miscellaneous loans have higher lending rates because they carry higher risk in repayment and come with no security.

As of the end of the third quarter, the nation’s household debt totaled a record 892.5 trillion won, according to the central bank.