(LEAD) Financial firms' home loans grow by record amount in 2009

(ATTN: ADDS more details in final 5 paras)
SEOUL, Jan. 6 (Yonhap) -- South Korean financial firms' home-backed loans rose by
the largest amount on record in 2009 as record low borrowing costs boosted loan
demand, data by the financial watchdog showed Wednesday.

Mortgage loans extended by local banks and nonbank institutions reached 351.2
trillion won (US$308.1 billion) as of the end of December, up 43.4 trillion won
from the previous year, according to data compiled by the Financial Supervisory
Service. The 2009 reading marked the largest full-year gain in history, it added.
Local banks' home-backed lending amounted to 265.1 trillion won as of
end-December, up 35 trillion won from a year earlier. The 2009 increase compared
with a 29.8 trillion won expansion seen in 2006 when lenders were scurrying to
extend home-backed loans.
The data comes as the Bank of Korea (BOK) cut its key interest rate by a total of
3.25 percentage points to a record low 2 percent between October 2008 and
February in an effort to put the brakes on a sharp economic freefall.
Amid record-low borrowing costs and signs of an economic recovery, demand for
mortgage lending rose in expectation of further gains in housing prices last
year.
On the basis of the quarterly growth, home-backed loans jumped by 13.3 trillion
won in the third quarter after rising by 8.3 trillion won and 12 trillion won in
the first and second quarters, respectively.
But after the financial regulator stiffened regulations on home loans in July and
September, the fourth-quarter growth eased to 9.8 trillion won, it added.
Meanwhile, local banks' loans to smaller firms grew at the slowest pace in four
years in 2009 as credit risks for such companies remained high amid a slowdown in
the economy.
Bank loans to small and medium enterprises (SMEs) amounted to an outstanding
450.7 trillion won at the end of last year, up 28.3 trillion won from the
previous year, the data showed. The figure marked the slowest growth since 2005
when such lending grew 12.4 trillion won.
According to a survey by the Bank of Korea, local lenders are expected to tighten
their grip on lending to smaller firms in the first quarter.
Although the Korean economy is recovering at a faster-than-expected pace, smaller
firms are still suffering from the business downturn and a funding squeeze.
Korean lenders plan to roll over their loans to smaller companies by an
additional six months until the end of June on the back of a continuation in
state loan guarantees. But as the government plans to gradually lower the portion
of its credit guarantees, incentives for banks to extend further loans are
diminishing.
sooyeon@yna.co.kr
(END)