Korea Sees Biggest-Ever Drop in Household Debt

Household debt fell by the biggest margin ever in the first quarter of this year as interest rates soared.

Although eased restrictions led to more housing loans being taken out, credit loans and overdrafts plummeted as Koreans hastily paid them off.

The Bank of Korea on Tuesday said household debt stood at W1.85 quadrillion at the end of March, down W13.7 trillion from the previous quarter (US$1=W1,313).

In the previous quarter, household debt also fell by W4.1 trillion, the first on-quarter drop in 10 years, and the trend continued with a larger drop this year. 

Even compared to a year ago, household debt fell by W9 trillion, the first on-year drop. 

Household debt includes loans from banks, brokerages and insurers plus outstanding credit card bills.

Financial loans fell by 10.3 trillion on-quarter to W1.74 quadrillion as credit and overdrafts shrank dramatically, although housing loans increased W5.3 trillion to a record W1.02 quadrillion. 

Outstanding credit card bills also dropped by W3.4 trillion to W114.4 trillion. Private consumption normally increases at the end of the year, but that did not happen last winter, while credit card companies reduce interest-free installment programs, resulting in a decrease in plastic spending.