SEOUL, Jan. 22 (Korea Bizwire) — South Korea’s top financial regulator said Sunday that it will tighten capital regulations on high-risk household lending, in the latest move meant to slow the pace of household debt growth.
The stricter regulations will be applied to banks, savings banks and insurance firms that provide loans to home buyers of more than 60 percent of a property’s value, the Financial Services Commission (FSC) said in a statement.
To encourage financial institutions to channel funds into the corporate sector, the FSC will also amend a calculation system of a loan-to-deposit ratio for banks.
By drawing a line between household and corporate loans in calculating the ratio, the new system will raise banks’ average loan-to-deposit rate to 99.6 percent from 98.1 percent if they focus too much on household lending, the FSC said in a statement.
Financial authorities have urged banks and other financial institutions to channel funds into innovative businesses as part of the government’s push for job creation.
At the end of last September, South Korea’s household debt stood at 1,419.1 trillion won (US$1,330 billion).
Although there is little risk that household debt could spark a financial crisis, household debt is growing faster than household income, choking off private consumption.