S.Korea tightens loan criteria as household debt jumps the most in 2 years

SEOUL (Reuters) – South Korea’s financial authorities said they would control household debt by tightening certain loan regulations, as rising mortgage demand drove up household borrowing by the biggest amount in two years in August.

Total household borrowing from banks stood at 1,075.0 trillion won ($810.94 billion) at the end of August, up 6.9 trillion won over the month, central bank data showed on Wednesday.

It exceeded the previous month’s 5.9 trillion won increase and the biggest since July 2021, according to the Bank of Korea. Household borrowing has been rising since April.

The country’s financial regulator held a meeting on Wednesday with related ministries and agencies to discuss ways to prevent further expansion of household debt, it said in a statement.

The Financial Services Commission said it would introduce measures against misuses of long-term mortgage loans, a stricter debt-to-service ratio for loans on floating rates, and tighter qualification criteria for the government’s temporary policy mortgage loan.

In August, mortgage loans grew for a fifth straight month and by 7.0 trillion won, the biggest since February 2020, while other loans fell by 0.1 trillion won in their 21st month of decline.

South Korea’s central bank held interest rates steady for a fifth straight meeting in August, as it tries to balance softer inflation with heightened risks to economic growth. Bank of Korea Governor Rhee Chang-yong said rate hikes would remain a secondary option for dealing with rising household debt.

($1 = 1,325.6300 won)

(Reporting by Jihoon Lee; Editing by Shri Navaratnam)