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Overheated housing market, IPO draws foil efforts to curb household debt

A bank official explaining a loan product to a visiting customer. (Yonhap)
A bank official explaining a loan product to a visiting customer. (Yonhap)



Taking impact from the panic buying trend in the local real estate market as well as explosive interest in a series of mega initial public offerings, South Korea’s household debt surged at a rapid pace in July. 

Household debt gained more than 6 trillion won ($5.2 billion), despite government measures to tighten bank lending, industry data showed Tuesday. 

The outstanding balance of household debt -- the total of financial loans plus credit card-based payment services extended to households -- at five major lenders here, including KB Kookmin, Shinhan, Hana, Woori and NH NongHyup, stood at 695.3 trillion won as of the end of July, up 6.29 trillion won from June. 

This comes despite the government’s efforts to rein in mounting household debt through stricter loan regulations. 

Earlier in April, the policymaking Financial Services Commission decided to toughen up rules for the current debt service ratios, or DSR -- the maximum amount of credit loans allowed for individuals compared to their disposable income. 

A borrower has been required to repay 40 percent of annual income if the borrower buys a home in some regions, including Seoul and its surrounding areas, but starting July, the 40 percent DSR rule was expanded to those who buy a home worth more than 600 million won in select regions.

A buying spree in the local real estate market coupled with retail investors’ capital flowing in the IPO market added fuel to the household debt growth last month, industry sources said. 

For instance, the amount of home-backed loans issued by the five major banks saw a 3.8 trillion won on-month increase in July to reach 514.2 trillion, the sharpest rise this year. 

Meanwhile, outstanding unsecured loans to individuals increased by more than 1.8 trillion won in the same month to some 140 trillion won as a growing number of retail investors are scrambling to borrow money for stock investments, including the bid for IPOs. 

Last Monday, KakaoBank, South Korea’s largest internet-only bank, attracted nearly 58 trillion won in public subscription deposits. Game powerhouse Krafton on Monday kicked off a two-day public subscription for its IPO on the Kospi on Aug. 10, drawing 1.8 trillion won in deposits on the first trading session. 

Affected by the overheated property and IPO markets, the volume of deposits at the five major banks was 624.1 trillion won last month, down 1.3 trillion won from a month earlier, data showed. 

By Choi Jae-hee (cjh@heraldcorp.com)
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