[Editorial] Household Credit Nears 2,000 Trillion Won, Urgent Need for Preemptive Debt Management

Household debt has been climbing steeply and is estimated to have topped 2,000 trillion won for the first time. The surge reflects a combination of so-called heavy borrowing to buy homes and debt-fueled investing in stocks. With the possibility of another benchmark rate hike by the Bank of Korea also being discussed, preemptive debt management centered on vulnerable borrowers is urgently needed.
According to the financial sector, the household credit balance at the end of the second quarter, which the Bank of Korea is scheduled to release on the 19th, is all but certain to exceed 2,000 trillion won. Household credit at the end of the first quarter had already reached a record 1,993.1 trillion won, leaving just 6.9 trillion won before the 2,000 trillion won mark. In the second quarter, household lending accelerated further. Data from the Financial Services Commission (FSC) show that household loans increased by 21.1 trillion won in just three months, making the break above 2,000 trillion won effectively a foregone conclusion.
The problem is not just the size of the debt. Its quality and borrowers' repayment capacity are also deteriorating. Borrowers who expanded credit loans to invest during the stock market rally have seen their repayment burden rise as share prices have recently corrected. At the end of the first quarter, the delinquency rate on household loans at banks stood at 0.4%, the highest level in more than a decade. That means households' actual ability to repay is weakening quickly. After the Bank of Korea raised the base rate from 2.5% to 2.75% last month, another increase cannot be ruled out at the Monetary Policy Board meeting on the 27th, citing inflation and household debt trends. Interest burdens are expected to grow further for now. Some market watchers even expect the current 2.75% base rate to rise to 3.5% by the first half of next year, underscoring the need for a medium- to long-term interest rate strategy rather than a one-off response.
Even so, the financial authorities recently doubled their target for managing household loan growth from 1.5% to 3%. As a result, the banking sector now has about 30 trillion won in additional lending capacity. In addition, group loans such as move-in payments, intermediate payments, and final payments will be separated from overall volume management and handled under separate targets. There is an unavoidable aspect to this move, as it is meant to ease the lending crunch that recently led to 'open runs' and even pre-dawn online rushes for mortgage loans. But it also means household debt could swell further.
In fact, mortgage loans have been driving the increase in household lending at banks. They account for 78% of this year's total increase. Despite the government's management stance, mortgage growth has not slowed. In this situation, doubling the overall target should not be read by the market as a wrong signal that borrowing to buy a home is acceptable.
Of course, most of the newly expanded 30 trillion won in lending capacity is expected to go toward group loans. However, some observers say it may also ease loan difficulties for buyers of new apartments or those looking to switch homes. For that reason, preemptive measures are needed alongside the policy shift to put a firm brake on the rapid rise in household debt. The hand that loosens regulations and the hand that manages total debt must not work at cross purposes.
Any further increase in the benchmark rate will inevitably raise households' interest burdens in the short term. Borrowers with a high share of variable-rate loans or those facing maturity extensions could see their principal and interest repayment burden snowball. The financial authorities should quickly prepare tailored debt restructuring and delinquency management measures for vulnerable borrowers so that a crisis in individual households does not spread into a risk for the entire financial system.