Household Debt Nears W600 Tillion

Household debts hit a record high in the second quarter reaching 596 trillion won with more customers borrowing from non-banking financial institutions, the Bank of Korea (BOK) said Monday. It said household debt, including loans from financial firms and bills payable, increased by 9.9 trillion won from a quarter earlier, up from a 4.6 trillion won gain in the first quarter.

Despite debt being at a record high in the second quarter, it is the first time that the increase has posted a single-digit growth in one and a half years since the end of 2005. The figures indicate that household debt will exceed the 600 trillion won mark later this year. Household debt is tantamount to about 67 percent of the nation’s 2006 nominal gross domestic product. Debt per household rose 37.3 million won from 36.4 million from the end of December.

The central bank, however, said the rise in household debt in recent months does not necessarily mean greater credit risks. Along with the debt growth, households, boosted by rises in home and stock prices, have also seen a steady rise in their combined assets, posting 848 trillion won, which is greater than the debt. Affected by tougher regulations on bank loans, bank lending rose slightly.

As a result, loans from banks edged up by 2.2 trillion won, while loans extended by non-banking financial firms soared by 5.7 trillion won in the second quarter, jumping more than four-fold from the 1.2 trillion won increase in the previous three months. Credit purchases also rose by 479 billion won, a turnaround from the 294 billion won drop in the first quarter. The central bank attributed the change to a recovery in private spending and aggressive marketing.