South Korea’s lending to households fell for the first time on record, highlighting the impact of the central bank’s 18-month tightening cycle that is also weighing on the nation’s property market.
(Bloomberg) — South Korea’s lending to households fell for the first time on record, highlighting the impact of the central bank’s 18-month tightening cycle that is also weighing on the nation’s property market.
Household loans declined 0.4% from a year earlier to 1,749 trillion won ($1.3 trillion) in the final three months of 2022, the Bank of Korea said Tuesday. Total household credit, which also includes debt to purchase goods, rose 0.2% — its smallest increase ever — to 1,867 trillion won.
Korea’s household debt as a share of gross domestic product is among the highest in the world. A series of interest-rate hikes, including in half-point increments, has discouraged Koreans from taking out credit in the past year, contributing to a correction in the housing market and slower consumption.
Most economists expect the Bank of Korea will hold its key rate at 3.5% when it meets Thursday as policymakers assess the impact of their unprecedented tightening.
While a majority of board members see the current rate as desirable and inflation shows signs of easing, the central bank has not backed away yet from its willingness to tighten further if needed.
BOK Governor Rhee Chang-yong has said since taking office last year that rate hikes will assist in reining in household debt. Policymakers and economists say highly leveraged households are among the biggest long-term risks to an economy that’s also aging fast.
The fall in household loans last quarter follows a steep rise in 2021, when the housing boom peaked. Household loans jumped 10% and 7.6% in the third and fourth quarters of 2021, respectively.
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