Korean banks temporarily halt mortgage lending over household debt worries

South Korean banks have started to temporarily halt their home-backed loans under pressure from financial authorities seeking to rein in the nation’s snowballing household debt, sources said Friday.

NH NongHyup Bank, one of the country’s top five commercial banks, decided to suspend all mortgage lending from next week until Nov. 30. Switching and renewals of mortgages will be halted as well.

Extension of personal loans will be tightened as well, with customers able to borrow up to only 100 million won ($84,700) each, depending on their credit line and annual salary.

NH NongHyup’s industry rival Woori Bank mirrored the move and decided to halt its extension of new home loans until end-September. A Woori Bank official explained that it has reached its limit in its quota for mortgages in the July-September period. But it took a more relaxed stance on the issues, saying that it is willing to make some “limited” exceptions under certain circumstances.

Standard Chartered Bank Korea, the local unit of the UK-based banking giant, has partially suspended its sales of home loans since Friday, while cutting back prime rates for some of its key products.

Industry watchers project other commercial lenders and savings banks will hop on the bandwagon soon, with Koh Seung-beom, the nominee for the Financial Services Commission on Wednesday warning banks to “swiftly” push for “strong” measures against the fast-growing household debt.

The country‘s household credit reached a record 1,765 trillion won as of end-March, up 9.5 percent from a year earlier, according to Bank of Korea data.

The BOK’s move to slash its benchmark interest rate to 0.5 percent has pushed people to borrow loans to purchase properties amid a heated housing market.

By Jung Min-kyung (mkjung@heraldcorp.com)