Seoul: The country's financial watchdog said Monday that excessive loans tied to real estate could hurt the qualitative growth of the country's economy, as well as increase financial risk, urging them to reduce such loans. In a meeting with the heads of board rooms of 18 banks, Kim Byung-chil, senior deputy governor of banks and non-banks at the Financial Supervisory Service, emphasized that excessive real estate-backed loans, coupled with increased interest income, pose another challenge to local banks for sustainable growth of their profitability.
According to Yonhap News Agency, Kim's remarks came as local lenders have been under fire for heavily depending on mortgages and other asset-backed loans to reap profits. Household loans extended by South Korean banks rose by the largest margin in 10 months in June, driven by an increase in housing transactions and surging home prices.
Banks' outstanding household loans increased by 6.2 trillion won (US$4.5 billion) last month from a month earlier, marking the largest on-month gain since August 2024, when household loans rose by 9.2 trillion won. The growth came as home-backed loans rose by 5.1 trillion won from the previous month, reaching 923.1 trillion won as of end-June. It marked an acceleration from a 4.1 trillion-won increase logged in May.
Home transactions rose markedly following the loosening of regulations on household lending by banks earlier this year and the Seoul city government's partial lifting of its land transaction permission rules. In the wake of surging real estate prices, the Seoul municipal government reinstated the land permission regulation in March.