South Korea’s household credit dipped in the first quarter due to a drop in demand for fresh loans and people cutting back on spending, the central bank said Thursday.

Household credit totaled 911.4 trillion won ($774.5 billion) as of the end of March, down 500 billion won from a record high of 911.9 trillion won tallied three months earlier, according to the Bank of Korea.

Compared with a year earlier, household credit rose 7 percent in the cited period, marking the third quarter in a row that numbers moved up, despite efforts by the country’s financial regulator to curb the household debt.

Household credit refers to credit purchases and loans for households extended by financial institutions, including commercial lenders and mutual savings banks.

“The sluggish property market that reduced demand for loans and people buying fewer products with their credit cards contributed to the modest decrease,” the central bank said.

Lending by all depository institutions reached 637.1 trillion won at the end of March, down 2.5 trillion won from three months earlier.

The growth rate of household lending at all commercial banks contracted 2.7 trillion won to 453.1 trillion won, while borrowing extended by non-bank institutions rose 200 billion won to 184.0 trillion won during the three months from the last quarter in 2011.

Loans extended to households by other financial corporations such as insurance companies and credit financial companies rose 3.1 trillion won to 220.6 trillion won.

Credit purchases stood at 53.6 trillion won, down 1.2 trillion won from the fourth quarter.

Heavy indebtedness of households is a source of concern for South Korean policymakers because excessive debt affects purchasing power at a time when the country is becoming more reliant on private spending to fuel growth. The domestic market has gained importance because sluggish global growth is hurting exports.

The BOK froze the key interest rate at 3.25 percent for an 11th straight month in May on challenges posed by persistent European debt concerns and the weak pace of domestic economic growth. 

(Yonhap News)