Local banks urged to rein in home-backed loans

SEOUL, July 13 (Yonhap) -- South Korea's top financial regulator called for local
banks Monday to rein in expanding mortgage loans in an effort to prevent them
from denting their financial health.
In a bid to avoid high risks stemming from lending to smaller firms and 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 rise in housing prices.
"The watchdog's recent strengthening of home-backed lending rules aimed to
enhance financial soundness of lenders," Chin Dong-soo, chairman of the Financial
Services Commission, told reporters after meeting with heads of 18 local banks.
"As there are problems related to unsold houses in provincial areas, the watchdog
plans to take those into account in implementing the regulations."
His remarks come as the watchdog strengthened its grip on home-backed regulations
last week amid rising housing prices. The regulator allows local banks to extend
mortgage lending amounting to up to 50 percent of the value of a residence in
Seoul and its adjacent areas, down from 60 percent.
Some experts say that the stiffened rules could throw cold water to the housing
markets and the construction industry amid budding signs of economic recovery.
They argue that an unusual rise in home prices is limited to certain areas in
Seoul and the problem of a huge number of unsold apartments lingered.
According to the watchdog, bank mortgage lending surged by a monthly average of 3
trillion won (US$2.32 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 and imposed heavy taxes on multiple home
owners.
sooyeon@yna.co.kr
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