Mortgage lending jumps W4.5tr in June as KB Kookmin Bank tightens loan cap

A view of residential buildings in Seoul as seen from Namsan N Seoul Tower. [Herald DB]

Mortgage lending across South Korea's financial sector expanded by 4.5 trillion won in June, widening from the previous month, as housing transaction volumes climbed and previously approved group loans were drawn down in bulk. Banks' own mortgage portfolios posted a third consecutive month of accelerating growth. With the surge in transactions that preceded the expiry of the capital gains tax surcharge suspension on May 9 still working through the pipeline, the upward trend is expected to continue for now. Against this backdrop, KB Kookmin Bank announced it will cut the maximum loan limit for home-purchase mortgages in the Greater Seoul area and regulated zones from 600 million won ($397,000) to 300 million won starting Friday.

Total household lending across all financial sectors rose by a preliminary 8.3 trillion won in June, according to the Financial Services Commission on Thursday.

That was down from the 21-month high of 9.3 trillion won recorded in May, but still a substantial expansion given that the largest monthly increase through April this year had been just 3.5 trillion won.

The month-on-month slowdown was largely driven by a pullback in non-mortgage lending, which shrank from 5.3 trillion won to 3.7 trillion won, partly reflecting voluntary credit-loan management measures by banks. Credit loan growth alone contracted by 1 trillion won.

However, mortgage lending growth widened from 4 trillion won to 4.5 trillion won over the same period. Banks alone accounted for 4.3 trillion won of the overall household lending increase, driving the broader balance expansion. In the non-bank sector, growth shrank from 800 billion won to 300 billion won.

Breaking down by sector, bank household lending rose 7.6 trillion won in June, up from 6.9 trillion won in May. Banks' own mortgage loans added 2.9 trillion won and policy-backed loans contributed 1.4 trillion won, together driving the overall increase. Non-mortgage lending at banks eased from 3.7 trillion won to 3.3 trillion won.

Household lending at non-bank financial institutions rose just 700 billion won, roughly a quarter of the 2.4 trillion won increase seen in May. Growth at mutual finance cooperatives slowed sharply from 800 billion won to 100 billion won, while credit card companies and savings banks each swung to declines of 200 billion won and 300 billion won, respectively. Only insurance-sector household lending edged up, rising 100 million won.

Monthly changes in mortgage and other household lending across the financial sector. [Financial Services Commission]

The Financial Services Commission held a household debt review meeting Thursday, chaired by Secretary General Shin Jin-chang, with representatives from the Ministry of Economy and Finance, the Bank of Korea, the Financial Supervisory Service, the Korea Federation of Banks, and the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — to assess risk factors for the second half of the year.

Shin said that given the typical two-to-three-month lag between a home purchase contract and the actual disbursement of a mortgage, the spike in transactions before the capital gains tax surcharge suspension ended was likely to keep feeding into mortgage figures for some time. He urged all financial institutions to stay vigilant and step up household lending management, noting that volatility in non-bank other lending — including insurance policy loans and card loans — had been rising.

On credit loans in particular, Shin warned that preemptive risk management was needed to prepare for the possibility of greater volatility ahead. "In the case of so-called 'debt investing' — borrowing to invest — losses can hit much harder, so investors must manage risk strictly within the bounds of what they can absorb," he said.

The commission also asked financial firms at the meeting to voluntarily manage in-house employee loans. While such loans, offered as a staff welfare benefit, fall outside public regulation, the commission expressed concern that combining large in-house loans with loans from financial institutions could undermine the principle of borrowing only within one's repayment capacity.

"Excessive in-house loans can amplify instability in the housing market," Shin said, calling on companies to voluntarily adopt controls such as first-priority collateral registration, principal-and-interest installment repayment, restrictions on multi-homeowners, caps on high-value properties and limits on housing size.

He also said all financial institutions should review their second-half business strategies and monthly and quarterly management plans again to ensure they stay on track to meet annual lending targets. "Financial firms, which know their customers and the market best, should take extra care to ensure that ordinary people and vulnerable groups are not harmed as market interest rates rise," he added.

ehkim@heraldcorp.com