Seoul: South Korea's household loans extended by major banks spiked in June by the most in 10 months on a rise in mortgages, industry data showed Tuesday. Outstanding household loans extended by five major commercial banks, including KB Kookmin Bank, Shinhan Bank, and Hana Bank, stood at 754.83 trillion won (US$556 billion) at the end of last month, reflecting an increase of 6.7 trillion won from the previous month.
According to Yonhap News Agency, the June increase marks an acceleration from May's 4.99 trillion-won on-month gain and represents the sharpest rise since August of the previous year, when the comparable figure was 9.62 trillion won. The banks' easing of some lending regulations at the beginning of the year coincided with an uptick in loan demand during the moving season.
Furthermore, the Seoul municipal government's decision to lift part of the land transaction permission zones in areas of Seoul's Gangnam, Seocho, and Songpa in February contributed to an increase in real estate prices in these regions. This development in turn fueled a rise in household loans. The banks' mortgage loans increased by 5.76 trillion won last month, showing a marked acceleration from the previous month's 4.23 trillion-won gain.
In response to the rising household debts, the Financial Services Commission (FSC) has mandated all lenders to sharply reduce their household lending starting this week. Additionally, home-backed loans for purchases in the capital area are now capped at 600 million won (US$442,000), as part of an unprecedentedly aggressive move by the FSC. The FSC has also implemented tighter DSR rules, applying to virtually all kinds of household debts beginning this month, and increased the stress interest rate to 1.5 percent from the previous 0.75 percent for loans in the greater Seoul area. The stress interest rate for household loans outside the capital area will remain unchanged at 0.75 percent.