Lenders to reduce home-backed loans, putting more pressure on borrowers


Korean banks plan to expand their lending but cut down on home-backed loans this year, putting more pressure on debt-laden households.

In the 2012 management reports filed to the Financial Supervisory Service, the country’s banks said they would extend their loans to households by 5.4 percent or 25 trillion won ($22.1 billion) from last year, an increase that is within the regulator’s guidelines. The self-imposed restriction is expected to help slow household debt growth but stop short of bringing about the much-needed deleveraging in the household sector.

Particularly worrisome is the amount of home-backed loans that mature this year ― about 50 trillion won at the last count. As local lenders limit new mortgage loans, many borrowers will be forced to pay back their loans or seek new loans in the secondary market.

If the household loan ceiling is kept, the banks’ loans to households will rise by 24.5 trillion won to 478.1 trillion won by the end of this year. Should growth continue at the same pace next year, the total outstanding household loans by banks will top 500 trillion won around the end of 2013, doubling from 253.8 trillion won in 2003.

Despite the regulator’s move to limit the loan growth rate, total household loans continue to grow, a worrying sign for Asia’s fourth-largest economy, which faces slowing export growth and more external uncertainties such as Europe’s fiscal debt crisis.

Major lenders are also likely to handle the maturing home-backed loans. Kookmin Bank has 10.4 trillion won worth of mortgage loans that are set to mature within this year, followed by Woori (9.5 trillion won), Shinhan (6.4 trillion won) and Hana (5.9 trillion won).

In general, banks tend to extend the maturity for home-backed loans and let borrowers pay interest for a longer period of time, but the regulator is pushing banks to halt such practices and force borrowers to pay back their debt.

In the report to the FSS, banks said they will increase credit and mortgage loans by 5.5 percent each. The figure marks the biggest increase for credit loans since 2007, while for housing loans, it is lower than the 7.5 percent growth last year.

Since last July, the Korean government has been trying to keep the snowballing household debt at bay. As of September, the country’s total outstanding household debts, which include loans and credit purchases, had reached a record 892.5 trillion won.

By Yang Sung-jin (insight@heraldcorp.com)