Household credit shrinks at sharpest pace ever in Q1

South Korea's household credit shrank at the sharpest pace ever in the first quarter of the year amid high interest rates driven by the central bank's monetary tightening to bring down inflation, data showed yesterday.

Outstanding household loans reached 1,853.9 trillion won (US$1.41 trillion) at the end of March, down 13.7 trillion won from three months earlier, according to the preliminary data from the Bank of Korea (BOK).

It was the sharpest decline since the central bank began to compile related data in 2002.

On a year-on-year basis, outstanding household credit declined for the first time in the January-march period as well.

Household credit refers to credit purchases and loans to households by financial institutions.

The decline was due to high borrowing costs, driven by the BOK'S series of interest rate hikes to bring inflation under control.

In January, the BOK raised its key interest rate by a quarter of a percentage point to 3.5 per cent, the seventh consecutive increase since April last year.

In February and April, the central bank kept the rate unchanged amid slowing inflation and economic slowdown woes.

Of the total credit, household loans stood at 1,739.5 trillion won at the end of March, down 10.3 trillion won from three months earlier.

Mortgage loans increased by 5.3 trillion won in the first quarter from three months ago, but other types of household loans declined by 15.6 trillion won over the cited period.

However, purchases on credit fell by 3.4 trillion won to 114.4 trillion won on a quarterly basis apparently thanks to seasonal effects.