Slowing Down Sharply in July

The growth of household loans by Korean banks sharply slowed in July as housing transactions became sluggish after a tax benefit on home purchasing expired, the central bank said August 7.

Household loans by local commercial banks, including home-backed and credit loans, reached 470 trillion won (US$421.4 billion) as of the end of July, up 100 billion won from the previous month, according to the Bank of Korea (BOK).

In June, household loans grew 4.8 trillion won, the largest monthly growth in six months, as more people took out bank loans ahead of an end-June expiry of the government's tax break over home buying. The tax break is part of the government's measures to boost the slumping housing market.

The BOK said that the slowed growth in household loans was also affected by a seasonal factor as housing transactions usually slow during rainy seasons.

If mortgage loans transferred to the state-run Korea Housing Finance Corp. are taken into account, household loans grew 2.8 trillion won last month, down from a monthly 5.8 trillion won increase in June. Mortgage loans by local banks declined by 14 billion won to 320.4 trillion won in July, it added.

Meanwhile, corporate loans provided by banks grew by 4.1 trillion won to 616.4 trillion won in July on the back of increased loans to larger firms. The growth of bank loans to small and medium enterprises rose by 1.1 trillion won to 464 trillion won in July. Banks' lending to larger companies gained 3.1 trillion won to 152.5 trillion won, it added.

The data came one day before the BOK held its monthly rate-setting session. Analysts said that the BOK is expected to freeze the key rate at 2.5 percent for the third straight month in August.