© Reuters. FILE PHOTO: The logo of the Bank of Korea is seen on the top of its building in Seoul, South Korea, July 14, 2016. REUTERS/Kim Hong-Ji
(Corrects milestone to biggest in 19 months, not 20, in headline, first paragraph)
SEOUL (Reuters) -Borrowing by South Korean households grew in May, marking the biggest increase in 19 months, as demand for mortgages climbs due to a loosening of regulations.
Total household borrowing from banks increased by 4.2 trillion won ($3.3 billion) or 0.4% to stand at 1,056.4 trillion won at the end of May, according to the Bank of Korea. It was a second straight month of gains after a 2.3 trillion won rise in April.
Total borrowing for the year to date is down 1.7 trillion won from the end of 2022. Borrowings for the whole of 2022 slid by 2.6 trillion won.
The central bank held interest rates steady for a third straight meeting last month. One and a half years of monetary tightening through January had brought a total of 300-basis-point increases.
($1 = 1,294.0800 won)
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South Korea’s household borrowing rose 1.6 percent in May compared to the previous month, the country’s largest increase in 20 months, according to the Bank of Korea.
The rise in household borrowing was driven by increased lending activity from banks and non-bank lenders, the Bank of Korea said.
Banks’ outstanding household loans rose 0.9 percent, the central bank said. Non-bank lenders saw the month-on-month increase of 4.1 percent, the largest rise in eight months, as they extended more loans for travel and dining.
The rise in household borrowing is an encouraging sign that domestic consumption has been picking up. It suggests that South Korean consumers are increasingly optimistic about their personal finances and are more likely to make purchases.
The Bank of Korea’s report also found that the total amount of debt held by South Korea’s households increased by 4.9 percent on-year in May, the biggest increase since March 2019. Household debt is now at its highest level ever.
The Bank of Korea noted that the household debt-servicing ratio fell slightly from 12.95 percent in July to 12.90 percent in May, as increased borrowing was matched by income growth.
The Bank of Korea also showed that the loan-to-gross income ratio rose slightly from 97.1 percent to 97.3 percent as the ratio of total consumer loan balances to total gross household income remained unchanged month-to-month.
Overall, the report suggests that South Korean consumers are becoming more confident in their ability to manage their debt. This is likely to contribute to increased consumer spending, which will benefit both the South Korean economy and businesses.
