Rise in household loans gathers pace in S. Korea despite real estate curb

Seoul, Aug 31 Household loans extended by South Korean banks added more than 4 trillion won ($2.87 billion) in August, data showed on Sunday, despite aggressive restrictions implemented earlier in the year to curb rising household debt and housing prices.

Household loans extended by banks increased 4.2 trillion won this month as of Thursday, sharply up from the 2.2 trillion won on-month growth in July, which marked the smallest increase since March, reports Yonhap news agency.

In an effort to curb rising household debt and housing prices, authorities in late June imposed a 600 million-won cap on mortgage loans for property purchases in the capital region, while suspending home-backed loans for multi-homeowners.

The growth picked up in August due to a rise in unsecured and other types of household loans.

While the government believes the latest restrictions have eased the market's overheating to some extent, it is mulling additional regulations for the real estate market, including tightening the loan-to-value (LTV) ratio, according to market observers.

The LTV ratio is a key regulatory tool used to curb household loans, as it limits the maximum amount homeowners can borrow based on the value of their collateral.

The ratio is currently set at 50 percent for anti-speculation areas in Seoul, with market watchers anticipating a tighter 40 percent ceiling.

Lee Eog-weon, the nominee for chairman of the Financial Services Commission, said the government will continue to monitor the housing market and take additional measures when necessary.

"There are many analyses the measures implemented on June 27 were successful in the short term amid rising household debt driven by mortgages in the greater Seoul area," Lee said in a written statement submitted to parliament for his confirmation hearing.

"However, there are also opinions that only regulating loans can limit the policy's effectiveness," Lee said. "When I take office, I will pay special attention to the matter and carry out my duties."

Lee added that the government needs to take "comprehensive consideration" amid the outlook that Seoul may seek to apply tightened curbs on loans for "jeonse."

Jeonse refers to a unique Korean system in which renters give landlords a large returnable deposit instead of paying monthly rent.

"We will monitor trends in the housing market and household loans and immediately implement measures currently under preparation when necessary," Lee added, noting that nothing has been decided on additional regulations.

Meanwhile, net interest margins of South Korea's top five banks, the difference between interest received and paid, approached the highest levels since 2022, when financial regulators made public disclosure mandatory.

The wider gap apparently came as the banks refrained from lowering lending rates amid the government's tighter control of household debt, while deposit rates fell to the lowest levels in more than three years.

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