Household debt reaches new heights on surge in loans from private lenders
People are borrowing more money from private lenders and non-banking financial firms, which in turn has led the total amount of household debt in Korea to surge to a record 1,870.6 trillion won ($1.38 trillion) in the third quarter, according to the Bank of Korea (BOK).
According to the BOK’s preliminary data, Tuesday, outstanding household debt, including the amount of credit used for the purchase of goods and services, increased in the July-September period by 2.2 trillion won from the three months earlier.
The finding came as the amount of loans taken out from first-tier banks shrank to 902.9 trillion won in the third quarter, down 2.5 trillion won from the preceding quarter.
The amount of money borrowed from second-tier banks also fell 600 billion won quarter-on-quarter to 349.2 trillion won in the July-September period.
The decline in bank loans, according to the BOK, is attributable to costly borrowing rates, with the BOK raising the key rate eight times since August 2021 by a combined 2.5 percentage points.
The benchmark interest rate currently stands at 3 percent — the highest in 10 years.
Under the circumstances, cashstrapped borrowers who were turned away by banks scrambled to get loans from credit card companies, insurers and even private moneylenders.
The credit purchases and other debts owed to non-banking financial firms totaled 504.7 trillion won in the third quarter, up 2.8 trillion won from the second quarter, to mark the third quarterly increase.
For instance, purchases using credit cards amounted to a record 113.8 trillion won in the third quarter, up 13.2 trillion won from a year earlier.
Separate data from the Financial Supervisory Service (FSS) earlier this month showed some 103,000 individuals took out loans in the first half of 2022 from private moneylenders who charge much higher interest rates.
The borrowers were as young as in their 20s, and those in their 30s and 40s combined accounted for more than two-thirds of the total number.
The borrowing period as well as the loan amounts have been increasing over time.
Customers using private moneylenders borrowed money for an average 44.3 months in the first half of 2022, compared to 42.1 months in 2021, 41.4 months in 2020 and 41.9 months in 2019.
The money they borrowed amounted to 6.53 million won in the first half of 2022, up from 5.22 million won in 2021, 4.72 million won in 2020 and 4.61 million won in 2019.
Meanwhile, household debt increased at the slowest pace since the relevant data was compiled in the fourth quarter of 2002.
The BOK said that whether the household debt will decline “remains to be seen,” noting that it will be influenced by factors including further interest rate hikes and a slump in the housing market.