SEOUL — A new set of regulations for local banks is set to take effect Wednesday, with the aim of further slowing down the pace of South Korea’s household credit growth.
The full-fledged enforcement comes after a grace period that began in March, during which commercial banks had to cap the volume of the high-risk retail loans they extended.
Starting Wednesday, commercial banks are required to keep “highly risky loans” to individuals to no more than 10 percent of the volume of all household loans they extend. This includes mortgage loans and consumer loans. A “highly risky loan” is defined as a loan where the principal and interest combined exceed 90 percent of an individual’s annual income.
Commercial banks are also subject to the same rule when extending “risky loans” to retail clients — that is, loans where the principal and interest combined exceed 70 percent of the client’s annual income. The volume of such loans cannot exceed 15 percent of the bank’s household loans.
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Similar restrictions on retail loans will apply to provincial banks and state-led banks, but with looser restrictions on maximum loans.
As of end-June, Korea’s household credit reached 1,493.2 trillion won ($1.3 trillion), up 1.7 percent from end-March, according to the Bank of Korea’s preliminary data. Meanwhile, retail loans from financial institutions from January through September rose at the slowest pace since 2015, up 6.1 percent on-year or 50.2 trillion won, according to data by the Financial Supervisory Service.
