Banks’ household loans shrink for 2nd straight month in Oct. on rising borrowing costs

SEOUL– Household loans extended by banks in South Korea shrank for the second straight month in October as borrowing costs remained high, affected by the central bank’s aggressive monetary tightening to bring inflation down, data showed Wednesday.

Banks’ outstanding household loans came to 1,058.8 trillion won (US$769.4 billion) as of end-October, down 0.6 trillion won from a month earlier, according to the data from the Bank of Korea (BOK).

This marked the second straight month of an on-month decline following a 1.3 trillion-won contraction in September.

Banks’ home-backed loans expanded 1.3 trillion won on-month to 794.8 trillion won, but their unsecured and other types of loans shrank 1.9 trillion won to 262.8 trillion won, the data showed.

Separate data provided by the Financial Services Commission and the Financial Supervisory Service showed that outstanding household loans extended by banks and other financial institutions declined some 200 billion won on-month in October.

The recent decline in bank loans is attributed to fast-rising market interest rates driven by the BOK’s aggressive move to raise the borrowing costs to tamp down inflation.

The BOK has hiked its benchmark rate eight times since August last year by a combined 2.5 percentage points. They included big-step 50 basis-point increases in July and October.

Meanwhile, banks’ corporate lending continued to rise as businesses resorted to bank loans as the local debt market remains volatile.

Banks’ corporate loans stood at 1,169.2 trillion won as of end-October, up 13.7 trillion won from a month earlier, the BOK data showed. It represented the 10th straight month of a rise in corporate lending.

Source: Yonhap News Agency