Defying government efforts to cut household debt, loans owed by South Korean households continued to grow to reach over an all-time high of 1,300 trillion won ($1.1 trillion) as of end of October. In particular, household debt extended by non-bank financial institutions soared to a record high of over 11 trillion won in the third quarter ended September, accelerating overall household debt growth.

According to the Bank of Korea (BOK) on Thursday, household debt rose to 1,295.8 trillion won as of end of September, the highest amount since the central bank started compiling household credit purchase data in the fourth quarter of 2002. Taking into account that household borrowing from financial institutions alone increased by 7.5 trillion won in October, market observers estimate household debt has exceeded 1,300 trillion won as of end of last month.

Household debt includes loans taken out by households from financial companies including banks, insurance firms, private lenders, and public financial institutions as well as through credit services such as credit card purchases and installment finance.

According to BOK data, household debt reached 1,295.8 trillion won as of end of September, up 3 percent or 38.2 trillion won from 1,257.6 trillion won in the end of June. The July-September increase is 4.3 trillion won higher than that of the previous three months of 33.9 trillion won. From a year ago, household debt as of end of September rose 11.2 percent or 130.9 trillion won from 1,164.9 trillion won, marking the highest annual increase.

As part of efforts to cut household debt, the government on Thursday decided to enhance scrutiny over vulnerable sectors that could lead to a rise in loans by introducing a stricter loan screening guideline on collective loans and mortgage-backed loans from mutual finance institutions. Based on the guideline, financial consumers should repay debt principal in installment within a year after receiving mortgage loans if the amount of borrowing exceeds their mortgage value or income or if they lack proof of sufficient income. A similar guideline was introduced to mortgage-backed loans extended by banks in the capital area in February.

By Chung Ui-hyun

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