SEOUL (Reuters) -South Korean households' loans from banks fell by the biggest amount in more than a year in September amid rising interest rates and an extended property market slowdown, further clouding the outlook for Asia's fourth-largest economy.
Bank lending to households, including policy mortgage loans, shrank 1.2 trillion won ($840.96 million) in September, after a 0.3 trillion won gain in August, according to Bank of Korea data on Thursday. It marked the biggest monthly decline since May 2021.
Growth in housing mortgage loans slowed to 0.9 trillion won, from 1.6 trillion won in the previous month, while other lending decreased by 2.1 trillion won, led by credit loans.
Total bank lending to households decreased 1.2 trillion won year-to-date to stand at one quadrillion and 59.5 trillion won as of the end of September, set for its first-ever annual fall since the data releases began in 2004.
South Korea's central bank has been aggressive in raising interest rates since August last year to tame the world's highest household debt and surging inflation. It has now hiked rates by a total of 250 basis points (bps), including a 50-bps one on Wednesday, and has flagged more to come.
The country's property market has abruptly gone from sizzling hot to floundering. The 2.6 quadrillion won ($1.97 trillion) of debt tied to the property market faces a major test as borrowing costs rise, with the home price slump and higher mortgage repayments likely to result in weaker consumption.
Across all financial institutions, household borrowing decreased by 1.3 trillion won in September, according to separate data from the Financial Services Commission, which added there was also a seasonal factor of the local Chuseok holiday bonus paid to employees.
"Financial authorities will manage household debt growth to remain stable, while continuing efforts to ease financial burden for people of low income or real needs," the FSC said in a statement.
($1 = 1,426.94 won)