Korea’s household loan growth quickens at 6.2% in September

From a stable rate of 4% in this year’s first half.

Household loan growth amongst Korean banks has showed a strong rebound in the last two months, quickening to 5.3% in Aug14 and 6.2% in Sep14 from a stable rate of 4% in Jan-Jul14.

According to DBS, on the month-on-month basis, the amount of new household loans jumped to KRW 4-5trn in Aug-Sep14, sharply higher than KRW 2trn on average in the first seven months of this year.

DBS adds that the acceleration in household loan growth almost entirely came from the segment of home mortgage loans. And it came immediately after the government’s relaxation of lending rules in the property market in July (LTV and DTI ratios). The indicators for property demand, such as home transactions and home prices, have also picked up during the past two months.

Here’s more from DBS:

The turnaround in the credit and real estate markets, thanks to the release of pent-up demand, bodes well for a domestic-led economic recovery in the short term. On the flip side, the medium-term risks of household debt overexpansion are also on the rise. Based on the current pace of bank’s loan expansion, it may not take very long for the total debt in the household sector to return to double digit growth rates. If without a catch-up in income growth, the risks of household overleverage and potential loan defaults would increase, which would in turn, require re-adjustments of the lending rules and/or tightening of monetary policy. Developments in the credit market will need to be closely watched to assess the medium-term economic outlook and the central bank’s policy direction.