Home music industry South Korean household debt rose at a rapid pace in October.

South Korean household debt rose at a rapid pace in October.

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Headquarters of the Bank of Korea in central Seoul (Yonhap)

South Korean household debt extended by local banks rose at a rapid pace in October, gaining more than 10 trillion won ($9 billion) in the month, central bank data showed on Wednesday, despite the government promises to curb the momentum.

According to the Bank of Korea, outstanding bank loans to local households increased by 10.6 trillion won over the month to reach 968.4 trillion won at the end of October, propelled by loans backed by the country. The gain is the biggest for an October reading since the BOK began compiling related data in 2004 and slightly lower than the corresponding figure of 11.7 trillion won in August, when it hit a record high.

According to a BOK official, the gain is attributed to a growth in demand for jeonse loans. Jeonse is a unique system in Korea, which allows tenants to pay a large lump sum to live in a property for at least two years. At the end of the term, the money is returned to them without interest.

The gain was apparently prompted by a sharp rise in the average jeonse price, driven by the Moon Jae-in administration’s housing rules which set a maximum rent increase of 5% and allow a jeonse contract to be extended. for four years. The average price of a jeonse in Seoul rose 7.5 percent to 536.7 million won in October from 510 million won in August, KB Kookmin Bank’s real estate service platform Liiv On showed. earlier this month.

“South Korean households borrowed more jeonse-linked loans,” said Yoon Ok-ja, an economist with the BOK’s financial market affairs team.

“When jeonse prices increase overall, there is usually an increase in demand for related loans, even when overall transactions fall,” she added.

Bank mortgages rose 6.8 trillion won in one month to 709.3 trillion won in October, from a gain of 6.7 trillion won the previous month. The gain is the largest for an October reading since 2015, when the corresponding figure was 6.9 trillion won.

Household debt growth has continued to escalate, threatening to pose an obstacle to the country’s economic growth, despite promises from the government and lenders to implement tougher measures to curb the figure.

According to Finance Minister and Deputy Prime Minister Hong Nam-ki on Monday, South Korea is considering toughening rules on overdrafts. People have relied heavily on overdraft in recent months to meet demand for property-related costs and equity investments, as the government tightened rules on mortgages in a bid to calm the market overheated housing.

Meanwhile, non-mortgage loans rose 3.8 trillion won last month, compared with a 3 trillion won increase the previous month. Unsecured loans were popular in October, as households flocked to the stock market to subscribe to a lucrative pipeline of initial public offerings, including the creator of K-pop phenomenon BTS, Big Hit Entertainment’s first market.

By Jung Min-kyung ([email protected])