ID :
191758
Wed, 06/29/2011 - 11:35
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Shortlink :
https://oananews.org//node/191758
The shortlink copeid
Watchdog vows to ease excessive household debt growth
(ATTN: RECASTS headline, lead; RESTRUCTURES; UPDATES with comments in paras 2-3, info in para 6)
By Lee Minji
SEOUL, June 29 (Yonhap) -- South Korea's top financial regulator said Wednesday it plans to push banks to mend their lending practices and tighten their loan-to-deposit ratios as part of its efforts to curb excessive growth of household debt.
South Korea is grappling to control household debt as heavy indebtedness is feared to crimp economic growth by putting restraints on consumer spending. As of end-March, the country's household credit, including loans and credit purchasing, reached 801.4 trillion won (US$743.9 billion).
"We will introduce policies so that (household debt) will not pose risks to the country's economy, and we will minimize the impact it can have on households," Lee Suk-joon, a standing commissioner at the Financial Services Commission (FSC), said at a press briefing.
"South Korea's household debt is currently at a broadly manageable level. But the government agrees that it may become a weakness when changes in economic situations occur at home and abroad."
Under the measures, scheduled to go into effect as early as July, the FSC plans to encourage local financial firms to extend home-backed loans with fixed lending rates. The financial watchdog also plans to encourage more households to mend the practice of only repaying interest on their mortgage loans without paying out principal during a grace period.
Currently, around only 5 percent of home loans are extended this way, but the FSC aims to raise the figure to 30 percent by 2016, said Lee.
A bulk of banks' mortgage loans are extended with floating lending rates, which require households to repay only the interest for a certain period, exposing them to more risks when interest rates are on the rise.
The FSC also said it plans to push banks to lower their loan-to-deposit ratios. Banks were initially requested to achieve loan-to-deposit ratios below the minimum requirement level of 100 percent by the end of 2013, but the FSC plans to advance the schedule to June 2012.
The financial watchdog said it may mull further lowering the minimum requirement if necessary.
The loan-to-deposit ratio, a gauge of a bank's solvency, measures the percentage of a bank's loans against the amount of its deposits. A higher reading means that the bank extended more loans than it could raise funds.
Korean banks' loan-to-deposit ratio once hovered above 100 percent, which was blamed as a major vulnerability to a liquidity squeeze at the height of the global financial turmoil. As of end-March, the country's 13 consumer lenders saw their average loan-to-deposit ratio reach 97.1 percent.
The financial regulator is also set to step up supervision on financial institutions' lending practices and increase their risk management capacity, it said.
The FSC plans to hike the risk-weighted value of BIS ratios on high-risk mortgage loans and increase inspection on individual debtors' debt repayment abilities.
The move comes as households' capacity to service debt is deteriorating. Korean households' capacity to service debt worsened in the first quarter as debt increased faster than income growth, and rising interest rates are feared to further hurt households' ability to repay debts.
In 2009, South Korea's household debt-to-gross domestic product ratio stood at 86 percent, higher than the Organization for Economic Cooperation and Development average of 77 percent.
mil@yna.co.kr
By Lee Minji
SEOUL, June 29 (Yonhap) -- South Korea's top financial regulator said Wednesday it plans to push banks to mend their lending practices and tighten their loan-to-deposit ratios as part of its efforts to curb excessive growth of household debt.
South Korea is grappling to control household debt as heavy indebtedness is feared to crimp economic growth by putting restraints on consumer spending. As of end-March, the country's household credit, including loans and credit purchasing, reached 801.4 trillion won (US$743.9 billion).
"We will introduce policies so that (household debt) will not pose risks to the country's economy, and we will minimize the impact it can have on households," Lee Suk-joon, a standing commissioner at the Financial Services Commission (FSC), said at a press briefing.
"South Korea's household debt is currently at a broadly manageable level. But the government agrees that it may become a weakness when changes in economic situations occur at home and abroad."
Under the measures, scheduled to go into effect as early as July, the FSC plans to encourage local financial firms to extend home-backed loans with fixed lending rates. The financial watchdog also plans to encourage more households to mend the practice of only repaying interest on their mortgage loans without paying out principal during a grace period.
Currently, around only 5 percent of home loans are extended this way, but the FSC aims to raise the figure to 30 percent by 2016, said Lee.
A bulk of banks' mortgage loans are extended with floating lending rates, which require households to repay only the interest for a certain period, exposing them to more risks when interest rates are on the rise.
The FSC also said it plans to push banks to lower their loan-to-deposit ratios. Banks were initially requested to achieve loan-to-deposit ratios below the minimum requirement level of 100 percent by the end of 2013, but the FSC plans to advance the schedule to June 2012.
The financial watchdog said it may mull further lowering the minimum requirement if necessary.
The loan-to-deposit ratio, a gauge of a bank's solvency, measures the percentage of a bank's loans against the amount of its deposits. A higher reading means that the bank extended more loans than it could raise funds.
Korean banks' loan-to-deposit ratio once hovered above 100 percent, which was blamed as a major vulnerability to a liquidity squeeze at the height of the global financial turmoil. As of end-March, the country's 13 consumer lenders saw their average loan-to-deposit ratio reach 97.1 percent.
The financial regulator is also set to step up supervision on financial institutions' lending practices and increase their risk management capacity, it said.
The FSC plans to hike the risk-weighted value of BIS ratios on high-risk mortgage loans and increase inspection on individual debtors' debt repayment abilities.
The move comes as households' capacity to service debt is deteriorating. Korean households' capacity to service debt worsened in the first quarter as debt increased faster than income growth, and rising interest rates are feared to further hurt households' ability to repay debts.
In 2009, South Korea's household debt-to-gross domestic product ratio stood at 86 percent, higher than the Organization for Economic Cooperation and Development average of 77 percent.
mil@yna.co.kr
