South Korea's household credit reached a record high in the fourth quarter from a year earlier despite stricter lending rules, the central bank said Tuesday.
The country's outstanding household credit jumped to 1,344.3 trillion won (US$1.17 trillion) in the October-December period, up 11.7 percent from 1,203.1 trillion won a year earlier, showed preliminary data from the Bank of Korea (BOK).
Quarter-on-quarter, household credit -- which is composed of household loans and credit card spending -- rose 3.7 percent in the fourth quarter, the data showed.
The government has tightened lending rules as part of efforts to contain the ever-growing household debt, which economists fear could dampen consumer spending in a country already suffering from declining exports.
The number of "marginal households," whose debt-to-disposable income ratio is over 40 percent, came to 1.81 million last year, up 14.7 percent from 1.58 million recorded in 2015, according to National Assembly Speaker Chung Sye-kyun's policy office.
The BOK left its key rate unchanged at an all-time low of 1.25 percent in January after sending the rate to the lowest level in June to support the growth of Asia's fourth-biggest economy.
In December, the U.S. Federal Reserve raised its key interest rate by a quarter of a percentage point to a range of 0.5 percent to 0.75 percent. It also signaled three rate hikes in 2017.
In particular, household loans from non-bank financial institutions increased 17.1 percent to 42.6 trillion, almost double the growth of the 22.4 trillion won posted in 2015.
It's viewed as attributable to the so-called "balloon effect" from the tightening of screening for loan qualifications by banks here starting in February last year. Low-credit and low-income people rushed to borrow money from non-bank lenders.
Alarmed by the growth level, senior regulators urged such financial firms to focus on risk management rather than the expansion of businesses.
"Excessive household loans may trigger the side effect of the spread of risks from the banking sector to the non-banking one," Jeong Eun-bo, vice chairman of the Financial Services Commission (FSC), said in a meeting with the representatives of non-bank institutions.
|Jeong Eun-bo, vice chairman of the Financial Services Commission, meets with the representatives from non-bank financial institutions in Seoul on Feb. 21, 2016. (Yonhap)|
He asked them to introduce the debt service ratio (DSR) in reviewing loan qualifications.
The DSR, published by the Bank for International Settlements (BIS), reflects the share of income used to service debt. It's regarded as a reliable early warning indicator for systemic banking crises.
The financial authorities also plan to conduct a special audit of around 70 non-bank institutions nationwide in the first half of this year. (Yonhap)
Park So-yeon firstname.lastname@example.org
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