SEOUL — South Korean banks have reported an increase in household loans for the fourth consecutive month in July, primarily driven by growth in mortgage loans, despite ongoing restrictive monetary policies. This rise comes amidst concerns over mounting household debt that could potentially weaken consumer spending in Asia's fourth-largest economy.
According to Yonhap News Agency, the total outstanding household loans reached 1,120.8 trillion won (US$821 billion) by the end of July, marking a 5.5 trillion won increase from the previous month. The rate of increase in home-backed loans has slowed compared to June, with mortgage loans climbing by 5.6 trillion won to 882.5 trillion won. In contrast, unsecured and other types of loans saw a slight decline of 0.1 trillion won, settling at 237.3 trillion won. These trends indicate a cautious borrowing environment amidst high borrowing costs following the BOK's aggressive monetary tightening measures initiated to curb inflation.
Last month, the BOK held the key interest rate steady at 3.5 percent, continuing a pause in rate adjustments for the twelfth consecutive session after a series of seven rate hikes from April 2022 to January 2023. While inflation is moderating, the central bank's chief highlighted the potential for a future policy reversal, though he cautioned that market expectations for an imminent rate cut might be overly optimistic.
Additionally, the BOK data revealed that loans to companies also rose significantly, by 7.8 trillion won in July, underscoring a continued demand for corporate financing amid these challenging economic conditions.