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S Korean household debt keeps rising

Seoul (The Korea Herald/ANN) – Household loans extended by South Korea’s financial institutions are set to leap by greater than 5 trillion won (US$4.66 billion) in August, an unusually high figure for a month of slow home debt, data showed Wednesday.

Financial authorities said household debt between Aug. 1-26 already reached 4.9 trillion won. On condition that demand picks up toward the tip of the month, the ultimate tally is anticipated to simply surpass the 5 trillion won mark.

The rapid expansion of household debt in August has alarmed financial regulators because the nation’s economy is struggling to fight a slower-than-expected growth and external factors along with the debt woes in Europe pose a continued threat for Asia’s fourth-largest economy.

“The monthly debt could surpass 5 trillion won, or maybe reach 6 trillion won, because the last couple of days of a month usually see heavy volume of individual credit transactions on the banks,” said a Financial Supervisory Service official.

Financial regulators are keen to tame household loans, including mortgage lending and credit loans, as surging home indebtedness dampen consumer spending, which in turn undercut the country’s economy growth.

The pickup in household debt in August is now expected to extend the July-August total to close 10 trillion won. In June, the govt announced a fixed of measures to minimize household loans in June, tightening banks’ loan-to-deposit ratios and mending banks’ lending practices. However the latest figures suggest that such efforts aren’t translating into an intended drop in household loans.

Banks’ loan to households jumped 18.2 percent (2.6 trillion won) on-month this month, while non-banking institutions increased the loans by 9.5 percent (2.3 trillion won) compared with a month earlier.

The July-August household debt rose by 7.1 trillion won in 2006, 7.9 trillion won in 2007, 8.1 trillion won in 2008 and 9 trillion won in 2009 before declining to six.8 trillion won last year.

The rise in household loans is fueled by mortgage-related loans and overdraft. Home lease, or “jeonse,” prices continue to rise despite the protracted slump within the housing market, while people are looking to get loans via overdraft, a channel it truly is under less regulatory supervision.

The financial regulators at the moment are considering additional measures to restrict loan extension after observing the fad within the coming weeks, especially earlier than the Chuseok holiday in September.