Korea’s household credit grew at the fastest pace in more than eight years in the fourth quarter as economic recovery and eased lending rules spurred demand for bank mortgage loans, the central bank said Monday.

Household credit, the sum of loans and credit purchases, climbed 25.3 trillion won ($22.7 billion) to 795.4 trillion won in the three months ended Dec. 31 from the previous quarter, the Bank of Korea said. That was the biggest gain in won terms since the third quarter of 2002. From a year earlier, household debt gained 8.4 percent.

“An expansion in household credits was mainly driven by the growth of bank mortgage lending,” a BOK official said.

In late August, the government decided to temporarily ease mortgage lending and tax rules to bolster the local housing markets, which were hit by the sharp brunt of the global financial crisis. The government is considering extending the eased lending rules in an effort to revive the housing market.

Household lending by local banks rose by 8.8 trillion won on-quarter to 431.5 trillion won as of end-December, quickening from a 3.7 trillion won expansion three months earlier, the central bank said. The quarterly growth marked the fastest gain since 9.32 trillion won in the second quarter of 2008.

In the fourth quarter, banks’ home-backed lending, which accounts for a majority of banks’ loans, grew by 7.7 trillion won to 284.5 trillion won, it added. The fourth-quarter numbers marked the fastest growth since a gain of 10.1 trillion won in the fourth quarter of 2006.

Credit purchases stood at 49.4 trillion won as of end-December, up 4.4 trillion won from the preceding quarter.

The data came as the BOK froze the key interest rate at 2.75 percent in February following a surprise rate hike conducted in January.

Households’ mounting debt is cause for concern because their capacity to service debt would be dented as interest rates rise.

The Bank of Korea unexpectedly left interest rates unchanged this month, signaling an increase may wait until next month. While higher borrowing costs could help contain inflation, they may strain debt-bearing households, small businesses and low-income earners.

Its policy board raised the benchmark interest rate by a quarter percentage point each in July, November and January from a record-low 2 percent, joining counterparts from China and India in tightening monetary policy to fight inflation as Asia leads the global recovery.

Asia’s fourth-largest economy expanded 6.1 percent in 2010 from a year earlier, the fastest pace since 2002. Inflation quickened to 4.1 percent in January from 3.5 percent in December, exceeding the central bank’s target of 2 percent to 4 percent through 2012.

(From news reports)