Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Household debt reaches all-time high amid pandemic
Passengers walk past a loan promotion banner of a commercial bank in Seoul in this file photo. Yonhap
By Lee Min-hyung
By Lee Min-hyung
The nation's aggregate household debt reached an all-time high in the second quarter as individual investors went on a buying spree financed by credit loans amid low interest rates, the Bank of Korea (BOK) said Wednesday.
According to data released by the central bank, the outstanding balance of household debt, which includes the balance on credit purchases, came to 1,637 trillion won as of the end of June, up by 1.6 percent from the previous quarter.
This is the largest since the BOK started compiling the relevant data in the fourth quarter of 2002.
Of note was the rapid increase in lines of credit extended during the April to June period. The statistics showed that these and non-mortgage loans to households jumped by 9.1 trillion won for three months ending June 30 from the previous quarter.
The rapid growth of credit lines was attributable to the stock investment boom as a growing number of retail investors jumped on binge buying of local stocks whose returns were high and exceptionally stable during the latest quarter when the stock market was on a recovery track after falling sharply due to the COVID-19 pandemic shock in the first quarter.
Household mortgages also increased by 14.8 trillion won during the same period. This is almost double, year-on-year, as people in their 30s and 40s in particular received financing to purchase homes amid fears over surging housing prices.
While the snowballing household debt may negatively impact the ruling Democratic Party of Korea and Cheong Wa Dae's economic team, the authorities are still in a position to keep supplying liquidity amid worries over prolonged economic damage from the pandemic.
Yonsei University economist Sung Tae-yoon claimed the financial authorities should put their top priority in achieving an economic recovery, even if household debt continues to increase at an alarming rate.
“The government should continue paying attention to the surging household debt, but what is more important and urgent is an economic rebound, which will help slow the rapid rise,” he said.
The economy suffered a major setback in the first half of the year when the spread of the coronavirus causing COVID-19 reached a peak and disrupted global trade. But as this was the core factor behind the economic fallout here, Sung underlined the need for the government to tightly control any second spread of the coronavirus.
The Financial Services Commission (FSC) also maintained its position to carry out policies that will produce an overall economic recovery.
“All the financial circles need to do is to continue supporting the real economy for the local economy to keep its recovery momentum and brace for a prolonged COVID-19 shock,” FSC Vice Chairman Sohn Byung-doo said.