The Korea Herald


S. Korea’s household debt growth slows down, Treasury yields surge in Oct.

By Jung Min-kyung

Published : Nov. 10, 2021 - 14:35

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A man passes by advertisements in Seoul promoting Standard Chartered Korea`s mortgage products on Oct. 26. (Yonhap) A man passes by advertisements in Seoul promoting Standard Chartered Korea`s mortgage products on Oct. 26. (Yonhap)
The pace of household debt growth in South Korea slowed down in October, while the yields on both short-term 3-year and benchmark 10-year Treasury notes saw gains in the same period, data showed Wednesday.

The outstanding household loans extended by banks here gained 5.2 trillion won ($4.3 billion) on-month to 1,057.9 trillion won, Bank of Korea data showed. The gain was less sharper compared with a 6.4 trillion won on-month gain observed in September, an on-year increase of 10.6 trillion won in October.

The data comes amid a shift in the household borrowing mood as the financial authorities have been imposing stricter lending rules to curb the nation’s snowballing household debt. Banks have been temporarily suspending lending of their key mortgage products, and imposing stricter screenings to uphold the financial authorities’ efforts.

By types of loans, mortgages increased 4.7 trillion won on-month to 774.5 trillion won in October, slowing down from the 5.6 trillion won gain seen in September.

Overall, the financial authorities said last month that it plans to implement stricter lending rules based on borrowers’ repayment capability via the debt service ratio system. The DSR measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income.

Since July, the policymaking Financial Services Commission has applied a 40 percent DSR on borrowers who seek to purchase a home worth more than 600 million won in so-called regulated regions, which are areas designated by the government as targets of speculative buying or “heated” home prices.

The BOK’s decision to end more than a year-long low interest rate of 0.5 percent by carrying out a 25 basis point rate hike in August has put a brake on household borrowing as well, with banks raising loan rates. BOK Gov. Lee Ju-yeol in October hinted a second rate hike in the pandemic-era at an upcoming rate setting meeting scheduled this month, further distancing from the ultralow rate era, as the economy has been showing signs of recovery.

Banks‘ loans to companies, on the other hand, picked up pace, gaining 10.3 trillion won on-month to 1,059.3 trillion won in October. The corresponding figure gained 7.7 trillion won on-month in September.

The yields of short-term 3-year and benchmark 10-year government bonds surged in October, due to concerns of a global inflation and talks of a shift in the major economies’ monetary policies at the time and foreign investors’ selling spree of Korean Treasury Bond Futures.

The yield on 3-year government bond stood at 2.1 percent as of end-October, gaining 0.51 percentage point on-month. The yield on 10-year government bond gained 0.34 percentage point on-month to 2.58 percent in the same period.

However, the BOK added that the bond yields have toppled since then, due to relaxed investor sentiment in November.

Last week, South Korea repurchased 2 trillion won worth of government bonds in an effort to tackle volatilities in the market.