South Korea’s household debt has been increasing in the past month, driven by a surge in financing from non-bank institutions. Previously, government applied restricted loan limits granted by the banks were in an effort to keep the household debt ratio within a healthy range. However, this regulation has caused consumers and business owners to seek alternative funds from the non-banking sector due to stagnant economic conditions. According to South Korea’s central bank, the balance of household loans from the non-bank sector has reached nearly KRW 300 trillion in January, up by KRW 3 trillion (USD 2.6 million) since December last year. This figure, totaled up with the loan amount at banks of KRW 710 trillion as of February, coupled with home loan surges, credit line and credit card debt increases – ultimately resulted in loans peaking at all-time-high in the country.
South Korea owns the highest amount of unsecured loans compared to other developed markets in Asia.
RFi Group data from the Retail Banking Council supports this insight. Data findings have shown that South Korea owns the highest amount of unsecured loans compared to other developed markets in Asia. Nearly one out of four banked customers in the country (24%) have an unsecured loan, twice as much as the average of other countries such as Singapore, China, Hong Kong, and Taiwan (10%-13%). Alas, reviewing the regulations should be effective in bringing the unsecured debt to a healthy level.
Source: RFi Group – Asia Retail Banking Council (H2 2016)