Despite the South Korean government’s efforts to decelerate the pace of household debt growth, the nation’s household debt saw its most significant increase in 25 months. Financial authorities have emphasized that household debt is being managed stably compared to previous periods, but concerns are rising as household debt balances continue to hit record highs, particularly against the backdrop of high-interest rates, which could lead to increased delinquency rates and defaults.

According to data from the Financial Services Commission (FSC) released on Wednesday, household loans from financial institutions increased by 6.3 trillion won ($4.8 billion) in October 2023. This is 2.2 times the growth seen in September and marks the highest monthly increase since a 6.4 trillion won spike in September 2021.

While mortgage loans in October increased by 5.2 trillion won, slowing down slightly from the 5.7 trillion won in September, unsecured loans and other forms of borrowing surged by 1.1 trillion won, driving the overall increase in household debt.

Household debt within the financial sector has been on an upward trajectory since April this year. From April to October, total household debt in the financial sector increased by 26.1 trillion won, a staggering tenfold compared to the 2.3 trillion won increase in the same period the previous year. As of October 2023, the outstanding bank loans to households in Korea totaled a record-high of 1,086.6 trillion won, as reported by the Bank of Korea.

In response to the rapidly increasing household loans, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said on November 5 that there should be “a sense of crisis,” and FSC Chairman Kim Joo-hyun has already announced measures to strengthen the management of household debt. During a parliamentary audit last month, Bank of Korea Governor Rhee Chang-yong warned that “if household debt is not controlled, we may have to consider raising interest rates” further.

But financial authorities maintain their position that household debt is being managed stably, with an FSC official explaining that “the average monthly increase in household debt from April to October is 3.7 trillion won, which is only half of the average increase of 7.4 trillion won over the past nine years. Since the current government took office, the total amount of household debt has decreased and the annual growth rate of household debt is around 0 percent, indicating that household debt is being managed stably.”

Recent government initiatives aimed at lowering interest rates to support vulnerable groups, including small business owners, have caused some confusion among the public. While commercial banks have raised interest rates amid a prolonged period of high interest rates, some banks recently reduced rates on home mortgage loans, among other products. This move aligns with government and parliamentary concerns about the burden of high interest rates on ordinary citizens.

By Yoo Joon-ho, Kim Hee-rae and Minu Kim

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