Household loans mark biggest increase in four months

Household loans extended by Korean financial firms grew by the largest amount in four months in April on a sustained increase in home-backed lending, the central bank said Thursday.

Household lending handled by local banks and non-bank institutions totaled an outstanding 606.9 trillion won ($558.2 billion) as of the end of April, up 4.6 trillion won from the previous month, according to the Bank of Korea.

The April expansion compared with 3.1 trillion won growth tallied in March marked the steepest monthly increase since a 5.7 trillion won advance in December.

The BOK said an increase in household loans mainly resulted as the economic recovery spurred loan demand and loans applied for ahead of the implementation of the re-tightened rules on mortgage lending that were extended to borrowers in April.

In March, the government re-tightened eased rules on mortgage lending in a bid to curb excessive growth of household debt. In August 2010, the government temporarily eased its grips on home-backed loans to bolster the tepid housing market.

Banks’ household loans, including home-backed lending, grew by 2.5 trillion won on-month to 437.7 trillion won as of end-April, the largest growth since 4.1 trillion won in November, the BOK said. Banks’ mortgage lending rose 2.3 trillion won to 292.2 trillion won. It marked the biggest increase since 2.7 trillion won in December.

Ballooning household debts are a major source of headache for policymakers as Korean households have to shoulder heavier burdens to service debt amid rising interest rates.

The BOK raised the key interest rate by a quarter percentage point to 3.25 percent last week in a bid to tame inflation. It has hiked the borrowing costs in five steps from a record low of 2 percent since July last year. 

(Yonhap News)