[Alpha Biz= Paul Lee] South Korea’s financial regulator has summoned senior bank executives to reinforce voluntary oversight of household lending practices, amid rising concerns over surging housing prices and ballooning debt.



According to financial authorities and industry sources on June 16, the Financial Supervisory Service (FSS) held a closed-door meeting at its Yeouido headquarters with deputy CEOs responsible for retail lending at 20 commercial banks. The FSS called on banks to strengthen self-regulation and adopt "non-price measures" to manage overall household loan volumes.



Rather than controlling loan demand by raising interest rate spreads, the FSS encouraged banks to limit loan supply through stricter screening criteria and adjusted loan structures. One such measure involves rolling back the maturity of mortgage products. Some commercial banks had recently extended mortgage terms to 40 years, a move that effectively reduced borrowers' monthly payments and boosted loan capacity. With housing prices rising sharply, banks are now expected to revert to a 30-year maximum loan term to curb loan growth.



The FSS will also begin on-site inspections to verify whether banks have effectively implemented voluntary loan control plans submitted earlier this year. Inspectors will scrutinize whether lending policies are being used to circumvent regulations—for example, approving loans for so-called "gap investments" (buying homes using rented deposits).



To combat misuse of rental loans for speculative purposes, major banks have already suspended “lease loans conditional on transfer of ownership” in Seoul and tightened requirements for loans secured by trust-registered properties. The FSS will assess compliance with these measures through both document reviews and field audits.



Regulators believe loan management is the most immediate tool available to cool overheating real estate markets, as long-term solutions such as housing supply plans or tax reforms require more time or political consensus.



Household lending across all financial institutions surged by KRW 6 trillion in May, marking the largest monthly increase in seven months. In June alone, household loans at the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup—jumped by KRW 2.76 trillion in the first 13 days of the month.



However, bank officials remain cautiously optimistic that the pace of loan growth will slow from July. One deputy CEO explained that, “Some banks lowered their lending margins following the base rate cut in February, triggering a spike in loan demand and group mortgage loans.”

 

 

 

[ⓒ 알파경제. 무단전재-재배포 금지]