South Korea’s household and corporate loans grew sharply in July amid low interest rate trend and economic slump triggered by coronavirus outbreak. Credit-backed personal loans, in particular, surged 4 trillion won ($3.4 billion) in July as individuals borrowed money to buy and rent out homes ahead of surge in housing and rent prices.
According to data released by Bank of Korea (BOK) on Wednesday, the outstanding balance of household loans extended by commercial banks reached 936.5 trillion won as of end of July, up 7.6 trillion won from the end of June. It is the fourth-largest monthly growth this year after 9.6 trillion won in March, 9.3 trillion won in February, and 8.2 trillion won in June. It is also the sharpest increase for July since the central bank began compiling related data in 2004.
The outstanding balance of households’ mortgage-backed loans reached 689.8 trillion won as of end of July, up 4 trillion won from a month ago. The growth, however, is smaller than 5.1 trillion won in June. Other household loans surged 3.7 trillion won in July to 245.6 trillion won. The on-month growth is 600 billion won bigger than that of June (3.1 trillion won) and the largest monthly growth in 21 months after October, 2018 (4.2 trillion won). It is also the largest balance for the month of July.
Most of the other household loans were credit-backed loans.
The BOK said that individuals turned to credit loans to cover housing-related funds such as contract fees for new apartment units in Seoul and surrounding areas and jeonse or deposit-based rent funds.
The outstanding balance of corporate loans, meanwhile, reached 955.1 trillion won as of end of July, up 8.4 trillion won from the end of June. The growth has relatively slowed compared with 27.9 trillion won in April and 16 trillion won in May but it is still the largest for the month of July.
Loans extended to large companies grew 1.9 trillion won while those to small and mid-size enterprises and individual businesses 6.4 trillion won.
The BOK said that lending to large companies had slowed down in June due to seasonal factors as they tend to repay debt but it increased again in July amid demand for funds to cover value added tax payment. Financial institutions also distributed funds to help companies survive business fallout from COVID-19.
Household borrowing extended by non-banking sector in July also increased 1.4 trillion won, mainly credit-based loans, according to data released by Financial Services Commission and Financial Supervisory Service.
Household loans surged 9 trillion won in both banking and non-banking sector in July – compared with 5.7 trillion won growth in the same period last year. The outstanding balance of household loans in banking and non-banking sector jumped 5.7 percent over one year.
Household loans in non-banking sector dropped 1.1 trillion won in May on reduced card borrowing and insurance contract borrowing before jumping 500 billion won in June and 1.4 trillion won in July.
By category, other loans including credit-backed loans jumped 1.3 trillion won in July and mortgage-backed loans 200 billion won.
The growth in other household loans from non-banking sector was bigger in July than June (600 billion won) but smaller than 1.4 trillion won in the same month last year.
Bank deposits in July, meanwhile, dropped 17.3 trillion won, BOK data showed. Deposits held by asset management firms, on the other hand, increased 16.6 trillion won in July mainly led by money market funds and bond-type funds.
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