Household loan growth hits 14-month high in August

Household loans extended by South Korean financial institutions grew at the fastest rate in 14 months in August, as mortgage loans sharply rose following eased rules on home-backed lending, the central bank said Monday.

Outstanding household lending by local banks and nonbanking institutions increased 6.3 trillion won ($5.89 billion) in August from a month earlier to 717.2 trillion won as of end-August, according to the Bank of Korea.

The end-August figure represents a rise of 6.9 percent, or 46.4 trillion won, from a year earlier. Also, the August gain marks the largest increase on a monthly basis since June last year when the comparable figure was 6.5 trillion won, the central bank said.

Banks’ household loans increased 5 trillion won in August from a month earlier to 497.6 trillion won with their mortgage lending increasing 5 trillion won to 346.1 trillion won over the cited period, the central bank’s data showed.

The government economic team led by Finance Minister Choi Kyung-hwan has been pushing ahead with stimulus focused on invigorating the local property market, which has been mired in a prolonged slump.

Among other things, the government has eased regulations on the property market such as the loan-to-value ratio and the debt-to-income ratio aimed at curbing housing speculation.

The data came ahead of BOK policymakers’ rate-setting session scheduled for Wednesday. Analysts said that the BOK is widely expected to cut its base rate by another quarter percentage point to a record low of 2.00 percent in the coming months as Asia’s fourth-largest economy is still not on a recovery path.

In August, the central bank lowered its policy rate by a quarter percentage point to 2.25 percent in a bid to help revive domestic demand which plummeted in the wake of April’s deadly ferry sinking that left more 300 people, mostly high school students, dead or missing.

The government also eased mortgage lending rules to invigorate the stagnant property market, while critics say eased mortgage rules may exacerbate household debts.

High levels of household debt have been viewed as a major drag on the Korean economy as high indebtedness in the private sector is feared to hurt domestic demand. (Yonhap)