Watchdog set to toughen criteria for home-backed lending

SEOUL, July 3 (Yonhap) -- South Korea's financial watchdog plans to strengthen
its monitoring of home-backed loans and toughen lending criteria if the housing
market shows signs of jitters, its head said Friday.

In an effort to find revenue sources amid a protracted economic slump, local
banks have been scrambling to increase their mortgage lending this year, stoking
worries about an unusual surge in housing prices.
"The government plans to let banks beef up risk management for loans to smaller
firms and households," Chin Dong-soo, chairman of the Financial Services
Commission (FSC), said in a forum. "The watchdog will draw up preemptive measures
by keeping a close tab on mortgage loans and stiffen lending standards if
concerns over market unease mount."
Market concerns rose as ample liquidity, caused by the central bank's aggressive
monetary easing steps, could push up consumer prices and spark asset inflation
down the road when the local economy begins to pick up.
According to the watchdog, bank mortgage lending surged by a monthly average of 3
trillion won (US$2.36 billion) this year, similar to levels seen in 2006 when
lenders were scurrying to extend home-backed loans.
In a bid to curb soaring housing prices in 2006, the government stiffened
regulations on home-backed lending. Under the toughened rules, banks can extend
mortgage lending amounting to 40 to 60 percent of the value of a residence.
Borrowers' annual repayment of interest and principal should not exceed 40
percent of their yearly gross income.
On Tuesday, Kim Jong-chang, governor of the Financial Supervisory Service, said
the watchdog plans to strengthen its monitoring of home-backed loans, but will
take a cautious approach toward strengthening rules for such lending.
sooyeon@yna.co.kr
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