Bank-issued household loans up sharpest amount in over 2 years in August

Bank-issued household loans up sharpest amount in over 2 years in August – The Korea Times

Bank-issued household loans up sharpest amount in over 2 years in August


Financial authorities to strengthen DSR regulations

By Anna J. Park

With the country’s monthly household loans on a steady increase, bank loans in August showed a rise of 6.9 trillion won ($5.1 billion) from the previous month to date. The increase in August is the highest monthly margin over the past two years and any single month-to-month period, since it reached 9.7 trillion won in July 2021.

According to the latest report by the Bank of Korea (BOK) on Wednesday, the aggregate balance of bank loans, including mortgage loans, at deposit-taking institutions in August stood at 1,075 trillion won, expanding by 6.9 trillion won from July. It is also the all-time high level for household debt in Korea’s history, as the household loans offered by the banks have been on a continuous rise for five consecutive months since April.

The hike in household loans in August was primarily driven by mortgage loans; mortgage loans recorded an expansion of 7 trillion won, reaching 827.8 trillion won in balance in the month. In contrast, credit loans and other types of unsecured loans decreased by some 100 billion won from the previous month.

“Household loans in August saw an expansion primarily due to the rise in mortgage loans. Despite weakening demand for loans for the purpose of housing rental deposits, the demand for mortgage loans for home purchases has significantly increased,” an official from the BOK explained.

“The increased level of housing transactions concluded in May and June were followed by mortgage loans in August,” the official added, highlighting that the recovery of housing sales and purchases earlier this year has led to the rapid mortgage increases.

The related ministries, including the Financial Services Commission (FSC), the finance and land ministries, the BOK, the Financial Supervisory Service (FSS), the Korea Housing-Finance Corporation and more, held a review meeting on the country’s household debt status.

The participating institutions identified that the recovery in housing transactions has been leading to a monthly increase in mortgage loans from banks, sharing their view that now is a critical point, which requires close management by financial authorities to prevent further debt expansion.

In particular, the financial authorities stressed the importance of rigorously strengthening regulations on debt services ratio (DSR), a ratio of the amount of debt to income, which is used as an indicator of an individual’s ability to meet their debt obligations. They pinpointed the potential that 50-year maturity mortgage loans, which earned popularity in July and August, might be misused as a means to bypass DSR regulations and therefore, excessively borrow to speculate.

Recognizing such dangers, the financial authorities have decided to apply a maximum of 40 years as the calculation period for DSR for those who cannot prove their repayment capacity throughout the entire loan period. Only those who can prove their repayment capacity would now be able to receive 50-year maturity mortgage loans. Banks will also strengthen their oversight in managing household debts to prevent excessive lending.


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