Bloomberg News

S. Korea Household Loans Post Record Fall on Tax Break End

February 13, 2013

South Korea’s bank lending to households fell the most on record after home-transaction tax benefits expired at the end of last year.

Banks’ loans to households declined 3.5 trillion won ($3.2 billion) last month to 463.1 trillion won, the biggest drop since the central bank began to compile the data in 2003, the Bank of Korea said in an e-mailed statement today. Mortgage lending dropped 2.3 trillion won to 314.7 trillion won while loans to companies rose 4.7 trillion won to 593.7 trillion won.

“This decline might be a good sign in a sense that household debt has been a big risk to our economy,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul. “But this number is distorted by tax incentives so it’s hard to read too much into it.”

Household debt, which combines home loans and credit purchases, rose to a record 937.5 trillion won at the end of September, about 80 percent of the nation’s annual gross domestic product, dampening private consumption and adding risks to the financial system. Park Geun Hye, who takes office on Feb. 25, has promised to unveil an 18 trillion won fund to help households avoid loan default.

The central bank will probably keep interest rates unchanged at 2.75 percent tomorrow after two cuts last year, 14 out of 15 economists predict in a Bloomberg survey. One economist forecast a cut to 2.5 percent.

The broadest measure of money supply, M2, rose 0.1 percent in December from the previous month after a 0.4 percent gain in November, according to a separate central bank statement today.

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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