Household debt growth gradually slowing

The Financial Supervisory Service office in Yeouido, western Seoul [NEWS1]

Korea’s household debt growth slowed by more than 60 percent in November from a month earlier as demand for mortgages weakened.

Household debt grew 2.3 trillion won ($1.8 billion) in the first 27 days of November compared to October's 6.3 trillion-won growth, according to the Financial Supervisory Service (FSS) on Thursday.

The FSS stressed that debt growth is gradually slowing and that it will continue to manage the debt level until the household debt-to-gross domestic product ratio reaches an appropriate level.

Korea's rate of 102.2 percent was the highest level among 34 major economies in the first quarter. It was distantly followed by Hong Kong's 95.1 percent and Thailand's 85.7 percent.

“Household debt growth has slowed in November due to stricter management by the banking sector,” said the FSS. It added that the majority of the household loans were extended to end users, not investors, and were largely drawn out for the government’s temporary policy mortgage loans.

It said the household debt growth is expected to gradually fall in December due to the suspension of the policy mortgage loan.

Financial regulators have been pressuring banks to slow the growth of household debt while simultaneously redistributing their record profits to ease borrowers’ interest payment burdens.

The FSS has also tightened loan criteria to make borrowing more difficult. Measures have included a stricter debt service ratio for loans with floating rates and tighter qualifications for the government’s policy mortgage loan, which has been cited as one of the contributors that pushed up the housing prices this year.

The regulators will introduce an even stricter debt service ratio for loan products next month, which will be effective starting next year.

The FSS also plans to strengthen its management of second-tier banks' delinquency rates, and to better oversee their operations through on-site inspections next month.

The overall savings bank delinquency rate stood at 6.15 percent at the end of September, up 0.82 percentage points from the previous quarter.

BY JIN MIN-JI [jin.minji@joongang.co.kr]