South Korea’s top financial supervisor vowed Monday to keep close tabs on non-mortgage loans extended to households, amid rising speculation of borrowers skirting tougher regulations on mortgages by using personal loans to buy homes -- an illegal practice here.
Zhin Woong-seob, governor of the Financial Supervisory Service, stressed in an undisclosed meeting the need for “thorough scrutiny” on the rising level of household credit. Financial authorities believe general household credit has been used to fill in for the shortage of mortgage loans from government measures adopted on Aug. 3, a result Zhin called a “balloon effect.”
Zhin also said local financial institutions would face consequences if they induced borrowers to take credit-based loans to pay for real estate assets, which is prohibited by the Regulations on Supervision of Banking Business under the Banking Act.
Borrowers, however, are not mandated to report the use of their loans, stopping banks or financial authorities from tracking whether personal loans have been used for home purchases.
The government is failing to control a debt binge by Korean households, recent FSS data indicated, despite stricter limits on loan-to-value and debt-to-income ratios applied on mortgages.
Outstanding personal loans at five major commercial lenders -- Kookmin Bank, Shinhan Bank, Woori Bank, KEB Hana Bank and Nonghyup Bank -- rose by 588.2 billion won ($516.5 million) in two weeks, to 93.1 trillion won as of Wednesday. If this trend continues to the end of August, the volume of overdue personal loans would see the largest monthly rise in 2017, following that of May by 1.3 trillion won.
The volume of household loans surged 9.5 trillion won on-month in July, with Korea’s second online-only bank Kakao Bank accelerating household debt growth with more favorable interest rates for personal loan borrowers, according to data from the Financial Services Commission.
Measures rolled out by the government on Aug. 2 to stabilize Korea’s red-hot real estate market appear to be failing to stem the rise in household debt, despite apartment prices coming under control. Apartment prices in the high-end Gangnam-gu district and Seocho-gu district dropped 0.01 percent, the first drop in 27 weeks dating to January, according to data from Kookmin Bank on Monday.
Aside from the pangovernmental measures in August, mainly to curb speculative home purchases, financial authorities are reportedly slated to roll out additional plans to curb household debt in early September.
Household debt amounted to 1,360 trillion won in Korea as of the end of March.
By Son Ji-hyoung