Household loans extended by South Korean financial institutions rose at the fastest clip in April in the wake of a surprise rate cut a month earlier, central bank data showed Tuesday.
Outstanding household lending by local lenders and non-banking institutions totaled 765.2 trillion won ($684.3 billion) as of the end of April, surging by 10.1 trillion won from a month earlier, according to the data by the Bank of Korea.
The monthly gain marks the sharpest growth since the central bank began compiling the data in October 2003. The previous record was 7.8 trillion won in October last year.
The jump came after the central bank cut the benchmark interest rate by a quarter percentage point to a record low of 1.75 percent.
By sector, banks’ household loans increased by 8.7 trillion won, its growth more than doubling from 4 trillion won in March. Non-banking institutions saw a combined 1.4 trillion won gain.
In the first four months of this year, South Korea saw a cumulative increase of 19.4 trillion won in household debt. The April gain accounts for more than half the amount.
The latest data comes two days ahead of the central bank’s monthly policy meeting. In a survey by Yonhap Infomax, the financial news arm of Yonhap News Agency, nine out of 17 analysts forecast the BOK to lower the rate to a new record low of 1.5 percent, citing the downside risk of Middle East Respiratory Syndrome on growth.
The analysts and economist who forecast a rate freeze, however, pointed out how an additional rate cut may further stoke the country’s still-growing household debt.
Household debt reached 1,040.4 trillion won as of the end of March, rising 12.8 trillion won from the end of last year.
The central bank has also acknowledged the recent sharp growth in household debt.
The monetary policy committee noted in its May 15 policy decision text that household lending at banks had increased “at a level substantially exceeding that of recent years.”
A semi-annual survey of market watchers by the BOK also showed that household debt was deemed as the biggest systemic risk facing Asia’s fourth-largest economy. (Yonhap)
