Household loans see biggest increase in 8 months... Bank of Korea likely to keep policy rate unchanged

It was tallied that household loans in the financial sector increased by ₩6.5 trillion last month. Fueled by rising expectations for housing prices, especially in the Seoul metropolitan area, the market has overheated, resulting in the largest monthly increase in 8 months. Many forecasts say that the Bank of Korea, which will hold a Monetary Policy Committee meeting on the 10th to decide the base interest rate, is likely to freeze the rate, taking this loan growth into account.

According to the 'Household Loan Trends' data released on the 9th by the Financial Services Commission and Financial Supervisory Service, the total balance of household loans in the financial sector increased by ₩6.5 trillion last month. The increase expanded from the previous month (₩5.9 trillion). This is the largest increase in 8 months since October of last year (₩6.5 trillion). The market overheating led by expectations of further housing price rises in the metropolitan area, combined with the rush-demand ahead of the stricter Debt Service Ratio (DSR) regulation in July, is analyzed as the cause.

By loan type, mortgage loans led the growth, increasing by ₩6.2 trillion. Other loans, including credit loans, rose by ₩300 billion, but the increase was somewhat reduced compared to the previous month (₩400 billion).

Looking at the sectors, the increase in household loans at banks expanded. According to the Bank of Korea, as of the end of June, the balance of household loans (including policy mortgage loans) at deposit banks increased by ₩6.2 trillion from the end of May to ₩1,161.5 trillion. In the second-tier financial sector, loans rose by ₩300 billion, but the pace slowed compared to the previous month (₩700 billion).

Mincheol Park, head of the market management team at the BOK, said, "Household loans continued to grow mainly due to housing-related loans," and added, "The effects of housing transactions were reflected with a time lag." He continued, "Although the write-off and sale of non-performing loans at mid-year typically causes seasonal declines in other loans, this time, demand for stock investments and living expenses offset that effect, resulting in a similar increase to last month."

The BOK expects that the 6·27 real estate lending regulations will gradually take effect, but as housing transactions in May and June are reflected with a delay, the growth trend in household loans is expected to continue until July or August.

Accordingly, there are predictions that the BOK will freeze the current annual policy rate of 2.50% at the Monetary Policy Committee meeting on the 10th and continue to monitor financial stability. Gwanho Shin, professor of economics at Korea University, said, "It is necessary to observe the effects of the financial authorities' loan regulations," and forecasted, "The rate will be frozen at the July MPC meeting."

Jingyu Kang, josep@hankyung.com