Growth of home-backed loans in S. Korea slows sharply in Q1

SEOUL, April 25 (Yonhap) -- The growth of home-backed loans by South Korean
financial institutions slowed sharply in the first quarter due to tightened
regulatory controls, financial data showed Sunday.
Mortgage loans extended by banks and non-bank institutions grew by 6.1 trillion
won (US$5.5 billion) in the January-March period, compared with 10.2 trillion won
in the fourth quarter of last year, according to the data compiled by the central
bank and the financial watchdog.
Mortgage lending expanded by 13.3 trillion won in the third quarter of 2009, when
the Financial Supervisory Service (FSS) began to stiffen regulations on
home-backed lending to curb housing prices.
The financial watchdog expressed concerns that rising housing prices and low
borrowing costs could feed an asset bubble, and in September required banks to
base loan amount on the borrower's income. Demand for mortgage loans has since
markedly decreased.
Tightened rules on banks' loan-to-deposit ratios, a measure of a lender's
solvency, have also discouraged local banks from expanding household loans.
Some have argued, albeit cautiously, that the financial regulator should ease
regulations on mortgage lending because the banking and construction sectors are
suffering from a business downturn.
But others said that given the high level of household debt, it is too early to
lift such regulations.
"Although construction firms are suffering from a slump in business, South
Korea's housing prices are not seen as sharply falling," said Lee Keun-tae, an
economist at LG Economic Research Institute. He added that it is questionable
whether now is the right time to ease home-backed lending controls.
sooyeon@yna.co.kr
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