Household loans offered by South Korean depository institutions dropped in January for the first time in two years, the central bank said Tuesday, amid the government’s on-going efforts to curb private debts.

Household lending handled by local banks and non-bank institutions totaled 639.3 trillion won ($568.3 billion) as of the end of January, down by 3.4 trillion won from the preceding month, according to the Bank of Korea.

The monthly decline was the first drop since January of 2010.

Household lending peaked in December of last year by reaching 642.7 trillion won.

The central bank said increased bonuses from companies during the lunar New Year holiday in January and other seasonal factors likely lowered private lending.

The subdued real estate market in the month also decreased demand for home-backed loans, a BOK official said. Home buyers also moved up their lending schedules to 2011 before a phaseout of a tax benefit.

The fall in household debts comes as the South Korean government tried to curb the rise in household credit out of concern that heavy indebtedness in the private sector would squeeze consumer spending and slow the economic recovery.

Banks’ household loans, including home-backed lending, dipped by 2.8 trillion won on-month to 453.1 trillion won as of the end of January, while total household loans from non-bank institutions showed a smaller decrease of 600 billion won to 186.2 trillion won in the same period, the BOK said.

Of the loans given by banks, housing loans dropped 900 billion won to 308 trillion won and their credit loans dipped 1.9 trillion won to 145.1 trillion won.

The BOK froze the key interest rate at 3.25 percent for the ninth straight month in March due to high inflation rate expectations and uncertainties in the external economy.

After Thursday’s rate-setting meeting, BOK Gov. Kim Choong-soo downplayed the chance of heavy household loans triggering another financial crisis in Asia’s fourth-largest economy. He urged to use microeconomic policies first, not the BOK’s monetary policy, to tame growth of private debts in South Korea. 

(Yonhap News)