Second-tier banks required to set aside more provisions to curb high-risk lending

The financial regulator said Thursday it will require second-tier banks to set aside more loan-loss provisions from the second quarter of this year, in a move to curb high-risk home lending.

The tougher rules will be applied to home loans by savings banks, the Nonghyup and Suhyup banks, and other mutual savings banks that can charge more than 20 percent interest per annum, the Financial Services Commission said in a statement.

For savings banks that make loans worth 10 million won ($8,767) with an annual interest rate of over 20 percent, current regulations require the bank to set aside 20 percent of the loans as a loan-loss provision, or 2 million won.

The tougher regulation will require their financial institutions to additionally set aside 50 percent of the loan-loss provision, or 1 million won, according to the financial regulator.

Shin Jin-chang, an official at the FSC, said the tougher rule is expected to let second-tier banks tighten guidelines for high-risk home lending.

The move came as the government has pushed to curb the growth pace of household debt.

Effective next Monday, the lending ceiling for homes located in areas designated by the government will be lowered from 70 percent to 60 percent of the property's value. The debt-to-income ratio will also be lowered to 50 percent from 60 percent.

The measures represented the government's latest efforts to tame the rise in real estate prices amid growing household debt, which topped 1,300 trillion won at the end of March. (Yonhap)