South Korea’s household loans rise 3.5% in June

Demand for bogeumjari loans and jeonse loans drive mortgage loan demand.

Household loans extended by banks in South Korea rose for the third straight month in June.

Banks saw a $4.63b (KRW5.9t) rise in household loans in June, 3.5% higher compared to the same month in 2022, according to data released by the Financial Services Commission (FSC). This is a faster rise than the 2.8% rise in May and the 0.2% rise in April.

Home mortgage loans rose $5.49b (KRW7t) in the banking sector. Individual mortgage loans rose $2.9b (KRW3.7t), policy mortgage loans expanded by approximately $2.1b (KRW2.6t). 

Banks’ jeonse loans also climbed KRW1b. A jeonse is a unique Korean leasing arrangement where, instead of a monthly payment, tenants pay a lump sum deposit, which is fully refunded at the end of the lease period.

Group lending for new apartment subscriptions also rose by $5.49m (KRW7b).

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The FSC speculates that the growth of mortgage loans in the banking sector may be caused by rising supply of special Bogeumjari Loan for non-speculative homebuyers and housing transactions rebounding in certain areas. A Bogeumjari loan is a type of long-term mortgage loan common in advanced nations, designed by HF to allow customers to make principal and interest repayment over a period of 10 to 50 years.

“However, as the volume of housing transactions is yet to bounce back to the level seen in previous years and with a significant number of mortgage borrowers taking out loans to return jeonse deposit money or for living expenses, the current pace of growth in home mortgage loans is not at an alarming level as to cause overheated speculation in the housing market,” the FSC said in a statement.

In contrast, other types of loans fell by KRW1.1t, partly driven by a KRW9b drop in credit loans, the FSC reported.

Nonbanks saw a drop of KRW2.4t in household loans with a slight increase in the insurance (up KRW1b) sector, but declines in the mutual finance (down KRW1.8t), savings banks (down KRW1b) and specialized credit finance (down KRW7b) sectors.