South Korea’s financial watchdog said Monday it will look into whether local mutual cooperative funds followed rules on home loan extension as household debt has been on the rise, led by non-bank institutions.

The Financial Supervisory Service said it plans to launch a field inspection into branches of the National Agricultural Cooperative Federation, or Nonghyup, and National Credit Union Federation of Korea in a bid to uncover irregularities related to the extension of household lending.

The FSS has recently called for them to refrain from excessively increasing their assets and to beef up their risk management as the regulator’s move to curb banks’ home lending caused people to rely more on non-bank institutions.

According to the FSS, the two non-bank institutions’ combined loans grew 0.9 percent on-quarter to 181.6 trillion won ($158.9 billion) as of the end of September. In the third quarter, household credit totaled a record 892.5 trillion won.

The FSS said that their excessive extension of household loans is feared to turn sour as the economic slowdown could boost the volume of bad debt.

South Korea is grappling with rising household debt as high indebtedness is feared to hurt consumer spending, denting its economic growth. Growing household debt looks more troubling as the growth of the Korean economy is likely to slow to 3.7 percent next year, crimping income growth.

The FSS said if irregularities are found, the watchdog may impose punitive actions on branches in questions and executives such as institutional warning. 

(Yonhap News)