FSC Chief Says Household Loan Target Change Mustn’t Stoke Speculation

Joint interagency meeting on expanded household debt monitoring

Kim Byoung-hwan, chairman of South Korea’s Financial Services Commission, said the adjustment of household loan volume targets is intended to support end-users and must not be taken as a signal that encourages speculation.

Kim made the remarks on Aug. 14 at a joint interagency meeting on expanded household debt monitoring held at the Korea Federation of Banks. With household loan volume targets adjusted on a rational basis, he said, financial institutions should ensure funds for genuine demand are supplied in a timely and stable manner.

The meeting was attended by officials from the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, the Bank of Korea, the Financial Supervisory Service, Korea Asset Management Corp. (Kamco), Korea Development Bank, Korea Housing Finance Corp., Housing and Urban Guarantee Corp. (HUG) and SGI Seoul Guarantee. The Korea Federation of Banks, associations representing non-bank financial institutions and the country’s five major commercial banks also took part.

Participants reviewed July household loan trends and discussed steps to implement the comprehensive financial measures for stabilizing the real estate market announced a day earlier.

Total household loans across all financial institutions rose 6.2 trillion won last month, according to the FSC, slowing from an 8.3 trillion won increase a month earlier.

Mortgage loans increased 3.5 trillion won, down from 4.5 trillion won the previous month. Growth slowed at both banks, where the increase eased to 3.4 trillion won from 4.3 trillion won, and non-bank lenders, where it slowed to 100 billion won from 300 billion won.

Other loans rose 2.7 trillion won, slowing from 3.8 trillion won a month earlier. The moderation was driven largely by a smaller increase in unsecured credit loans, which rose 2 trillion won after increasing 2.6 trillion won the previous month.

By sector, household loans at banks increased 5.4 trillion won, down from 7.6 trillion won a month earlier. Growth slowed in bank-originated mortgages, which rose 2.5 trillion won versus 2.9 trillion won, and in policy loans, which increased 900 billion won versus 1.4 trillion won. Other loans also posted a smaller increase, rising 2 trillion won after 3.3 trillion won the previous month.

Household loans at non-bank financial institutions rose 800 billion won, broadly unchanged from the previous month. Mutual finance lenders swung to a 700 billion won decline from a 200 billion won increase, while savings banks turned to a 500 billion won increase from a 200 billion won decline. Credit-specialized finance companies also switched to growth, rising 300 billion won after a 200 billion won decline.

Financial authorities focused less on the slowdown in growth than on the absolute size of the increase. They said household lending remains high compared with historical averages, and the pace at which annual lending management limits are being used is still fast.

The increase in household borrowing remains above past averages, Kim said, and annual lending management limits are being used up somewhat quickly, leaving no room for complacency.

He also cautioned that rising home transactions in the Seoul metropolitan area could push household lending higher again.

Apartment sales transactions in the capital region totaled 21,000 units in November and 21,000 in December last year, then rose to 23,000 in January. They edged down to 22,000 in February before climbing to 27,000 in March, 28,000 in April, 29,000 in May and 30,000 in June.

Home transactions in and around the capital have continued to rise, he said, and household loan demand is therefore expected to remain elevated for the time being, requiring more active management.

The government’s move to tighten household debt management while redirecting the flow of financing reflects its view that volume controls should not restrict areas where funding is genuinely needed.

Referring to demands raised during three real estate policy forums held last month, Kim said speculative demand should be controlled more firmly while financing should flow more smoothly to actual homebuilders and end-users.

Against that backdrop, the financial package announced a day earlier kept its focus on curbing housing demand while expanding support for housing supply and for end-users, including young people.

The government said it will provide sufficient public guarantees to viable projects to speed construction starts and housing supply. For projects that have been halted, it plans to combine restructuring with new funding to encourage work to resume.

It also plans to improve related systems and ease regulations so private capital can flow into housing supply projects.

The government will also step up efforts to normalize troubled real estate project-financing sites. Kim asked Kamco to prepare for the swift launch of a new normalization fund and strengthen links with syndicated loans and restructuring funds established by financial institutions.

Financial companies were told to work with the Financial Supervisory Service to designate officials for each distressed project included in their own normalization funds, and to draw up implementation plans so projects can be restored quickly.

Kim also asked Korea Housing Finance Corp. and HUG to support rapid construction starts through ample guarantee supply.

Financial support for young people and other end-users will also be expanded. The government plans to launch a three-part youth housing support package tailored to the housing needs of younger people. It will also revise income requirements for Bogeumjari loans so eligibility is based on one spouse rather than combined spousal income, partly easing the so-called marriage penalty.

The government also plans to revise debt service ratio, or DSR, income screening so expected future income growth for younger borrowers is adequately reflected.

At the same time, it will adjust household debt management targets for financial institutions so funding needed for housing supply and end-users can be provided more steadily.

Kim asked lenders to make full use of the additional room created by the revised loan targets so funds for genuine demand, including relocation loans, intermediate payments and balance-payment loans, can be supplied in a timely and stable manner.

He also made clear that the target adjustment should not be interpreted as a relaxation of property-loan regulations.

The adjustment is intended to support end-users, he said, and must not become a signal that fuels speculative loan demand.

The message was that while the government will keep overall household loan growth under control, it will ease funding constraints for housing supply and end-user demand.

Noh Jung-dong, Hankyung.com reporter dong2@hankyung.com