South Korea’s household borrowing tops $1.4 trillion amid investment surge

South Korea's household borrowing hit a record $1.4 trillion in the second quarter, driven by a surge in housing-related loans and stock investments, according to the Bank of Korea. Household credit, which includes loans and credit purchases, rose by 25.9 trillion won to a total of 2.02 quadrillion won by the end of June. This was the largest quarterly increase in household debt since 2021.

With loans accounting for the majority of the increase, household loans climbed by 24.9 trillion won to 1.89 quadrillion won. Housing-related loans, a key driver of the debt surge, grew by 12.2 trillion won, up from 8.1 trillion won in the first quarter. The central bank pointed to a rise in housing transactions and a surge in group loans for sold homes as the main reasons behind this increase.

Other loans, such as unsecured credit and overdraft accounts, also increased by 12.8 trillion won. The rise in borrowing coincided with a strong stock market, encouraging households to borrow for equities, a practice known as "bit-tu." This was the first time since 2021 that growth in other loans surpassed housing-related loans.

The Bank of Korea forecasts that loans will grow more slowly in the third quarter as the stock market weakens. While the government aims to reduce the household debt-to-nominal GDP ratio to below 80% by 2030, the debt burden remains high by international standards, with Korea's ratio at 85.3% at the end of Q1 2023, compared to 68.1% in the US and 59.7% in France.