Banks urged to recover existing home loans

SEOUL, Aug. 21 (Yonhap) -- South Korea's financial watchdog has urged local banks to induce individual borrowers to repay their debts instead of putting the lid on fresh loans, in an effort to help curb household debt, industry sources said Sunday.
The move came after major lenders Shinhan Bank, Hana Bank and Nonghyup said Thursday they will halt new household lending, sparking concern that they could force households to resort to higher-interest loans from non-banking financial institutions, further aggravating the household debt problem.
In a meeting with bank officials on Friday, the financial authorities asked lenders to step up efforts to recover existing loans to households and not to halt new loans, according to the sources.
An official at the Financial Services Commission, the financial regulator, said that retrieved money could be used to lend to people who are in urgent need of bank loans to help finance home rentals or cover their living costs.
Bank officials said customers, who took out loans for stock investment or purchases of multiple homes, will be asked to pay back their loans at maturity.
The latest move comes as ballooning household debt has emerged as a major drag on the economy. As of the end of March, the country's household debt surpassed the 800 trillion won (US$738 billion) mark due to a long streak of low rates and the economic recovery.
Market watchers, meanwhile, expressed concern that the latest move could prompt cash-strapped households to rush to receive higher-rate loans from non-bank financial institutions, further aggravating the problem.
"If bank loans are restricted, low-credit borrowers and cash-strapped people could flock to non-bank lenders," said a researcher at the state-run Korea Development Institute. "The authorities and banks should provide for elaborate measures."
According to the central Bank of Korea, household loans expended by non-bank depository institutions jumped 16.1 percent on-year to 171.4 trillion won as of the end of May. In comparison, depository banks' home loans rose 5.9 percent to 440.9 trillion won over the cited period.