SEOUL, Feb. 21 (Korea Bizwire) — South Korea’s household credit shrank at the sharpest pace in 13 years in the fourth quarter of 2022 amid high interest rates driven by the central bank’s monetary tightening to bring down inflation, data showed Tuesday.
Outstanding household loans reached 1,867.0 trillion won (US$1.44 trillion) at the end of December, down 4.1 trillion won from three months earlier, according to the preliminary data from the Bank of Korea (BOK).
It was the sharpest decline since the first quarter of 2009, when household credit contracted by 3.1 trillion won from the previous quarter. It also compared with an increase of 2.7 trillion won recorded three months earlier.
On a year-on-year basis, outstanding household credit expanded by 4.1 trillion won, which was also the smallest on-year increase since the fourth quarter of 2003, when it expanded by 7.3 trillion won.
Household credit refers to credit purchases and loans to households by financial institutions.
The decline was due to high borrowing costs, driven by the BOK’s series of interest-rate hikes over 1 1/2 years to bring inflation under control.
In January, the BOK raised its key interest rate by a quarter of a percentage point to 3.5 percent, the seventh consecutive increase since April last year. It will hold a rate-setting meeting on Thursday.
Of the total credit, household loans stood at 1,749.3 trillion won at the end of December, down 7.5 trillion won from three months earlier.
From a year earlier, household loans declined by 7.8 trillion won, the first on-year contraction since relevant data started to be compiled.
However, purchases on credit increased by 3.4 trillion won to 117.7 trillion won on a quarterly basis apparently thanks to a rise in spending after the government lifted almost all restrictions on the coronavirus.