Korea's household debt has set another record high, edging close to the 2,000 trillion won mark. According to the Bank of Korea (BOK) on the 19th, the preliminary balance of household credit in the first quarter of this year stood at 1,993.1 trillion won, up 14 trillion won, or 0.7%, from the end of last year. Household credit, which combines loans from banks and non-bank financial institutions with credit card receivables, has now risen for eight consecutive quarters since the second quarter of 2024.
The increase in the first-quarter household credit balance came as "yeongkkeul" borrowing — a Korean term for scraping together every available resource, even one's soul, to buy a home — drove a sharp rise in housing-related loans (mortgage and jeonse deposit loans) at non-bank lenders such as mutual finance institutions. Bank household loans fell by 200 billion won under regulators' aggregate lending caps, but household loans at non-bank lenders — including savings banks, mutual finance institutions, credit unions and Saemaul Geumgo — surged by 8.2 trillion won, double the 4.1 trillion won increase in the previous quarter. Notably, while other loans fell by 2.5 trillion won, housing-related loans jumped by 10.6 trillion won.
While the overall growth in household debt is worrying, the qualitative deterioration of that debt is even more serious. As financial regulators have raised the bar at banks, borrowers are flocking to non-bank lenders — a textbook balloon effect now playing out in reality. The sharp rise in housing-related loans at second-tier financial institutions, where interest rates are higher and default risks greater than at first-tier banks, must be taken as a serious warning signal. To make matters worse, amid sharp volatility in the stock market, individuals are opening more overdraft accounts and brokerage margin loans are also expanding, pushing up the risk of leveraged investing as well. According to the Korea Financial Investment Association, margin loans rose by 7.3 trillion won in the first quarter — more than double the 3.3 trillion won increase in the previous quarter.
Now is the time to step up pre-emptive risk management in preparation for an era of monetary tightening driven by global inflation. With government bond yields rising rapidly, the situation is dire enough that the BOK is weighing a base rate hike. If household interest burdens swell during a rate-hiking cycle, a sharp contraction in consumption and a domestic demand slump are likely to follow. Financial authorities and the BOK must take a meticulous approach to managing the overall volume of household debt, finely calibrating interest rate policy and monitoring non-bank risks. They must not repeat the mistake of acting only after the most fragile link in the debt chain has already snapped.
