South Korea Household Debt Rises to Record $1.3 Trillion

South Korea’s household debt rose to a new record in 2017, even as the government tightened lending terms to cool the property market.

Household debt including credit purchases rose to 1,450.9 trillion won ($1.3 trillion) at the end of December, up 8.1% from the previous year, according to a statement from the Bank of Korea. While the pace of increase remained fast, it was the slowest in three years, Bloomberg reported.

President Moon Jae-in’s administration has released a series of measures since taking office in May to slow debt growth and prevent overheating in the property market. The government is concerned that the high level of debt, combined with higher interest rates, could cause vulnerable households to default.

BoK Governor Lee Ju-yeol said this week that efforts should continue to push the rise in household debt below that of incomes, and that a “soft landing” is preferable to a rapid slowdown. Household debt rose 2.2% in the fourth quarter.

Banks accounted for about half of the increase in lending to households in the fourth quarter, while other financial institutions such as insurers and the Korea Housing Finance Corp. accounted for more than a third. Purchases on credit such as credit cards accounted for 8.9%.

While growth in bank mortgage debt slowed in 2017, other loans jumped. The BoK sees the increase coming from loans taken from newly launched internet-based banks, and as more households took out loans.

South Korea announced in October that it will tighten mortgage rules for owners of multiple homes to put a brake on binge borrowing, amid concerns growing household debt could leave the economy exposed to a crash.

In August, the government had implemented the toughest rules yet to cool housing prices, including new curbs on mortgages and increased capital gains taxes for owners of multiple homes.

Last month, the BoK raised its economic growth forecast for this year on expectations of continued domestic demand recovery and robust export growth. It forecast that South Korea’s gross domestic product will grow 3% in 2018, faster than its previous estimate of 2.9%, Yonhap said.

The BoK left its base rate steady at 1.5% last month, after raising the rate last November, marking the first rise in more than six years.

In the report, the BoK said inflationary pressures are likely to build up in the second half of this year as the economy improves and oil prices rise.