April 26, 2024

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(123rf)

Bank loans to households in South Korea fell for the first time in four months in July, as rising interest rates and tighter loan curbs prompt Koreans to refinance their budget without banks’ help, Bank of Korea data showed Wednesday.

As of July, loans stood at an estimated 1,060.5 trillion won ($810.1 billion), down 300 billion won from the previous month.

Unsecured and other nonmortgage loans fell 2.2 trillion won to 268.2 trillion won in July on higher borrowing costs in a monthly fall that was bigger than a 1.2 trillion-won decline in June. Mortgage loans soared 2 trillion won to 791 trillion won in the same period, having risen faster than a 1.4 trillion-won uptick in June.

“Mortgage loans had increased because demand for ‘jeonse,’ or a two-year home rent, was high but the other loans had all declined because interest rates were high and curbs got tighter,” a senior Bank of Korea official said, referring to the recent rate hikes.

The central bank backed rate raises four times this year -- in January, April, May and July -- in a bid to tame persistent inflation, which the bank’s chief has said will continue to be the top priority until he sees clear signs of a price slowdown. The bank has backed its biggest single rate hike of 50 basis points in July.

Meanwhile, business loans grew at their fastest pace, with money borrowed from banks totaling 1,137.4 trillion won as of July, up 12.2 trillion won from the previous month and marking a seven-month rise.

"COVID-19 relief the government had extended to businesses and efforts by banks in response to the government initiative had all contributed to the rise in corporate lending,” the senior bank official said.

Despite inflation worrying policymakers, the current Yoon Suk-yeol government had backed massive COVID relief packages aimed at helping small and medium-sized businesses ride out economic disruptions the pandemic caused.

The central bank is expected to back another rate raise later this month, with analysts expecting it to raise the benchmark rate by 25 basis points, the usual rate hike and as signaled by the bank’s chief.

BOK Gov. Rhee Chang-yong has said that he would consider raising borrowing costs in the usual increment, though he did not specify whether a hike would take place each time in August, October and November.

Rhee has said inflation would peak in the early fourth quarter but noted he would have to look at more data to confirm the forecast.

By Choi Si-young (siyoungchoi@heralcorp.com)