Financial regulator presses banks to tighten loan rules

Korea’s top financial regulator on Tuesday urged banks to tighten their screening of mortgage applications to help slow the growth of household debt.

The government had tightened lending rules last month, but critics say loopholes give some people room to borrow in excess of lending limits.

Kim Yong-beom, vice chairman of the Financial Services Commission, told representatives from banks that the growth of household debt could pick up during the second half of the year, citing a rise in sales of new homes. He called for banks to apply “pre-emptive management” by strictly screening mortgage applications.

Household debt stood at 1,388.3 trillion won ($1.23 trillion) at the end of June, up 10.4 percent from a year earlier, according to the Bank of Korea. The debt is estimated to exceed 1,400 trillion won this month, given that household debt rose by about 18 trillion won in July and August.

Although there is little risk that household debt may spark a financial crisis, rising debt chokes off private consumption and makes it difficult for the central bank to raise its key rate amid global monetary tightening.

Next month, the Financial Services Commission is scheduled to announce a fresh package of measures, including the debt service ratio, to rein in the growth of household debt. Yonhap