Unprecedented
Mortgage loans and household loans, including credit loans provided by the top five Korean banks, increased by 6.1695 trillion won (US$5.6366 billion) and 8.0527 trillion won (US$7.3608 billion) last month, respectively. The total increase in household loans for that month is estimated at around 10 trillion won (US$9.1 billion), given that the five banks represent approximately 80 percent of the total household loans provided in Korea. Such an increase has been unprecedented since records began in 2008. The Financial Supervisory Service told the banks to control the pace on May 11.
The amount of household loans has skyrocketed since the government adjusted the LTV and DTI last year. The increment amounted to 9.8 trillion won (US$9.0 billion) in the first quarter of this year alone. The problem is that the quality of the debts could deteriorate under the circumstances. It is said that half of the mortgage loans are for the purpose of covering living expenses.
“The government has told banks to increase business loans, but the banks are focusing on household loans, which are relatively safer, with the low interest rate affecting their profitability,” said an expert, adding, “However, this is likely to result in soaring financial costs on households once the interest rate rebounds.”