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Household debt

Heavy household borrowing fans Korea’s asset market overheating

By May 13, 2021 (Gmt+09:00)

3 Min read

Heavy household borrowing fans Korea’s asset market overheating

South Korea’s asset market is showing signs of overheating as households take out fresh loans at a record pace to invest in initial share sales, real estate and even riskier cryptocurrencies.

Banks’ outstanding balance of household loans stood at 1,025.7 trillion won ($912 billion) as of the end of April, up 16.1 trillion won from the previous month, according to Bank of Korea data on May 12.

The increase marks its highest monthly gain since the central bank began compiling data in 2004 and compares with a rise of about 7 trillion won a month in the first quarter of this year.

Mortgage loans grew 4.2 trillion won on the month to 743.2 trillion won in April, accelerating from a gain of 800 billion won in March.

Credit loans increased 11.8 trillion won – a record monthly gain – to 281.5 trillion won at end-April, BOK data showed.

A BOK official attributed the massive personal borrowing to the recent IPO fever amid ultra-low interest rates.

LOOKING FOR WINDFALL GAINS

Individual investors, driven by ample liquidity, have flocked into the stock market for a windfall gain as it was not uncommon for companies specialized in bio, battery and other seemingly promising businesses to debut on the local bourse and see their shares overshoot for days.

Heavy household borrowing fans Korea’s asset market overheating

Reflecting the recent IPO fever, SK IE Technology Co. (SKIET), the battery materials subsidiary of SK Innovation Co., last month set a new record for IPO demand, paralyzing computer servers and operations at some of the brokerages handling the share sale.

The electric vehicle battery separator maker has attracted a record 80.9 trillion won in deposits from retail investors during the Apr. 28-29 public subscription, pushing up household loans in the month.

However, SK IE Technology made a disappointing debut on Tuesday with its stock falling 26.4% from the opening price of 210,000 won.

Earlier this year, BOK Gov. Lee Ju-yeol warned of an abrupt stock market correction, asking investors to refrain from equities investment on excessive leverage.

On Wednesday, the central bank said people’s strong interest in cryptocurrencies such as bitcoin also contributed to April’s rapid gains in household loans.

“EVERYTHING RALLY”

Signs of inflating values of assets such as equities, properties and cryptocurrencies are growing across the globe in what some analysts term an “everything rally,” with commodities like copper and oil, bitcoin and even junk bonds climbing sharply.

The S&P 500 and the Dow Jones Industrial Average indices have risen to fresh record-highs for 26 times and 24 times, respectively, so far this year. The value of bitcoin, the world’s biggest digital currency, has reached $1 trillion, higher than the combined market cap of the 10 largest Korean stocks, including Samsung Electronics Co., SK Hynix Inc. and LG Chem Ltd.

Heavy household borrowing fans Korea’s asset market overheating

On May 10, the price of three-month copper future hit a record intraday high of $10,747.5 per ton.

Federal Reserve Chairman Jerome Powell on Apr. 28 warned of a bubble forming in the asset market, saying asset prices could fall significantly in the not-too-distant future.

“The US Fed has apparently initiated the process of bond tapering and a rate hike amid rising inflation expectations,” said Ha Joon-kyung, an economics professor at Hanyang University.

“The value of assets, especially technology shares and virtual currencies, will hurt significantly if and when the interest rate rises.”

Write to Il-hwan Kim at lovepen@hankyung.com
In-Soo Nam edited this article.
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