Record-high Q2 Korean household debt heats up property, stock markets

South Korea’s household debt surged to the highest level in its history in the second quarter of the year, led by soaring mortgage loans and securities-backed borrowing, according to central bank data.

The outstanding balance of household debt swelled by 25.9 trillion won ($21.8 billion) in the three months from April, to reach a record high of 1,637.3 trillion won at the end of June, the Bank of Korea said on August 19.

The quarterly increase was more than double the first quarter’s expansion of 11.1 trillion won, adding fuel to the residential property and stock markets.

Household debt includes loans taken out from banks and non-banking financial services firms, as well as credit purchases.

Loans took the bulk of the household debt, coming to 1,545.7 trillion won at the end of June. That marked an increase of 23.9 trillion won in the April-June quarter.

The outstanding balance of mortgage loans expanded by 14.8 trillion won to 873 trillion won in the second quarter, marking a slower increase on a quarterly basis, but still higher than the average quarterly growth reported in 2018 and 2019.

South Korea’s residential property market posted the biggest monthly rise in almost 10 years in July, pushing the average selling price of apartment units in Seoul above the psychologically important 1 billion won mark for the first time.

KOSPI REBOUNDS 60% FROM MARCH LOW

With banks’ savings rates falling to a record low of 0.89% on average in June, market liquidity has been flowing into stock markets. In their hunt for bargains, individual investors borrowed money from securities firms in the face of a string of government measures and heavy taxes aimed at cracking down on speculative investment in the real estate market.

Loans collateralized by securities ballooned at their fastest rate for a single quarter during the April-June period. The outstanding balance of securities-backed loans surged by 7.9 trillion won ($6.7 billion) to 29.9 trillion won at the end of June compared to three months before, according to the central bank. In the first quarter, the balance of securities-backed loans taken out from brokerage companies shrank by 4.6 trillion won to 22 trillion won.

The KOSPI has climbed by 62% over the past five months to 2,360.54, since tumbling to a year low of 1,457.64 as of the close on March 19. On August 19, it closed down 3.7% at 2,274.22.

With household debt estimated to exceed 85% of the country’s gross domestic product, however, default risk is looming large.

“Financial services companies have delayed interest collection on loans lent to small business owners until after next March,” said Kim Sang-bong, an economics professor of Hansung University in Seoul. “If the self-employed and households face pressure to pay back the increased loans, the loans could sharply deteriorate.”

Separately, South Korea’s money supply expanded at a quicker pace in June than it has in a decade, on foreign investors’ return to the local stock markets.

Write to Ikhwan Kim at lovepen@hankyung.com


(Photo: Getty Images Bank)