Detonator of Collective Loans
The Bank of Korea announced on February 24 that the collective mortgage loan balance in the domestic banking sector totaled 110.3 trillion won in the fourth quarter of last year and the amount increased by 8.8 trillion won in 2015. The amount reaches no less than 120.3 trillion won given that loans worth 8.9 trillion won were converted to individual loans. As of the end of last year, collective loans accounted for 29.6% of the mortgage loan increment.
According to the Financial Services Commission, in the meantime, the amount of the collective loans is continuing to increase after having reached 111.4 trillion won at the end of January this year. Likewise, the ratio of the loans to the mortgage loan increment jumped to 40.4% between December last year and the first month of this year, which implies that the best part of the mortgage loan increase in January was for collective loans.
This month, the Korean government put into practice new credit review guidelines in order to deal with household debt risks. According to the guidelines, lenders are to look closely into borrower’s repayment capability when providing loans, and the size of lending is to be determined in view of his or her total liability. Also, the amortization is to be encouraged for loan quality control. According to the commission, an increase in household debts is expected to be slowing down this month for the stricter regulations.
Still, collective loans, which are fueling the increase in household debts, are not included in the targets of the regulations. Specifically, the guidelines are not applied to collective loans guaranteed by builders whereas the meticulous rules govern individual borrowers. Under the circumstances, collective loans worth a total of 6.3 trillion won obtained approvals in January alone during the slow season of the apartment market, signaling a rapid increase in the future.