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Household debts in S.Korea keep record-breaking momentum at 1.13 tln dollars

Xinhua, August 25, 2016 Adjust font size:

Household debts in South Korea kept a record-breaking momentum through June as demand moved to non-banking lenders amid tighter control on bank loans, central bank data showed on Thursday.

Household credit, the broadest measure of household debts, reached 1,257.3 trillion won (1.13 trillion U.S. dollars) as of end-June, according to Bank of Korea (BOK).

It marked the largest since the BOK began compiling the data in the fourth quarter of 2002. The household credit includes loans from banks, insurers, private lenders and public financial institutions as well as purchase on credit.

For the first six months of this year, the household credit grew 54.2 trillion won. The growth accelerated from an increase of 20.6 trillion won in the first quarter to a surge of 33.6 trillion won in the second quarter.

The second-quarter expansion marked the largest quarterly growth except for a 38.2 trillion won increase tallied in the fourth quarter of last year.

The acceleration followed the government's efforts to encourage banks to tighten standard for loans, resulting in stronger demand for loans from non-bank lenders that impose higher interest rates than banks and increase debt-servicing burden for households.

The so-called "balloon effect" came as the BOK cut its benchmark interest rate by a quarter percentage point in June to an all-time low of 1.25 percent.

BOK Governor Lee Ju-yeol had aggressively lowered the policy rate by 25 basis points in August and October each in 2014 and in March and June respectively in 2015. Some of market watchers predicted one more BOK rate cut later this year.

Household debts extended by non-bank lenders, including savings banks, community credit cooperatives and credit unions, jumped 10.4 trillion won from three months earlier to 266.6 trillion won as of end-June.

It was the largest quarterly expansion by non-bank institutions. Household debts by banks increased 17.4 trillion won in the April-June period. Endit