South Korea's major banks said Thursday that they temporarily suspended the extension of fresh household loans in a bid to join the regulator's efforts to curb excessive growth of household debt.
Local banks, including Shinhan and Hana, said they have begun to halt extending fresh home loans, including mortgage lending and some types of credit loans, and will do so until the end of August.
The move came as local banks' household loan growth is not showing signs of easing despite the government's move to stem snowballing household debt.
In late June, the government unveiled a set of measures to curb snowballing household debt by tightening banks' loan-to-deposit ratios and mending banks' lending practices.
As of the end of March, household debt surpassed the 800 trillion won (US$746.4 billion) mark due to a long streak of low rates and the economic recovery.
Agricultural cooperative lender Nonghyup said it plans to suspend all kinds of household loans, including mortgage lending, until the end of this month to comply with the regulator's move to stem household debt.
No. 3 lender Shinhan Bank said it plans to hold off on the extension of new mortgage loans until end-August and some types of credit loans will not be extended until they receive approval from the bank's headquarters. Its rival Hana Bank took similar actions.
"The step aims to gradually mend the practice of extending mortgage loans and to beef up risk management," said an official at Shinhan Bank. The watchdog is seeking to lead local banks to extend mortgage loans with fixed rates.
Woori Bank said it will apply stricter home loan standards instead of suspending household lending. But top lender Kookmin Bank, which focuses on retail banking, said it did not halt the home loan extension, but will closely monitor the situation.
Rising household debt has been a major headache for Korean policymakers as the central bank's ongoing tightening moves increase households' burdens to service debt. But a delay in raising the key rate also aggravates their indebtedness, which is feared to curb consumer spending and hurt the economy.
According to the Bank of Korea, local banks' home loans rose by 2.3 trillion won on-month to 445.5 trillion won as of end-July. Bank mortgage loans grew by 1.9 trillion won to 297.3 trillion won as of the end of last month.
Local banks, which were once hit hard by the global financial crisis, have begun to increase their assets as the local economy recovers. Due to cautions against soured construction loans, domestic lenders have been focusing more on extending loans to households.
The Financial Services Commission (FSC), the financial regulator, said household debt grew at an annual rate of 13 percent between 1999 and 2010, hovering at an average economic growth of 7.3 percent.
Last year, the ratio of household debt to household disposable income stood at 152.7 percent, higher than the average of 134.1 percent for the Organization for Economic Cooperation and Development.