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Stricter bank credit control causes mortgage loan growth to sink

All News 11:36 January 31, 2016

SEOUL, Jan. 31 (Yonhap) -- Stricter credit control guidelines by local banks that officially go into effect in February caused a sharp drop in home-backed mortgaged loan growth coming into this year, financial sector sources said Sunday.

Data provided by KB Kookmin, Shinhan, Woori, KEB Hana, Nonghyup and the Industrial Bank of Korea showed the amount of outstanding mortgaged loans provided to customers as of last Thursday standing at 349.49 trillion won (US$290.15 billion), up around 446 billion won from late December when it reached 349.05 trillion won.

Sources pointed out that the increase is only one-sixth the average growth of 2.7 trillion won reported for every month of 2015, when banks had less stringent credit evaluation guidelines.

The government has been trying to curb the rise in household debt that has reached 1,166.4 trillion won as of late September, spiking 10.4 percent from the same period last year.

"Even if January is usually a very 'slow month' for loans, growth numbers were much smaller than 979.8 billion won in loans provided by banks to their customers in the first month of 2015," a source said.

An investment analyst at KEB Hana Bank said the planned tightening of credit evaluations with greater emphasis on debt-to-income and loan-to-value ratios seems to be exerting impact on the borrowing market.

"This is causing households to borrow less with figures clearly supporting this trend," the insider claimed. Banks announced last year they will start using the new lending guidelines from Feb. 1 onwards, although most had started to more tightly regulate lending from the start of the year.

Reflecting this, housing market data showed sales of apartment houses in Seoul rose just 0.11 percent in January vis-a-vis December, the slowest increase in 11 months.

Home prices for the Seoul and surrounding port city of Incheon and Gyeonggi Province have stood still for about six weeks.

Even with houses in Daegu, 302 kilometers southeast of Seoul, where housing prices rose for 65 months straight, the drop in demand caused a dip in prices.

"With the tightening of credit, there has a been a noticeable drop in housing transactions that is affecting the overall market as a whole," said Lee Hwi-jung, a senior researcher at Hana Institute of Finance.

The expert added that the decrease is noteworthy because excess capacity and the move by the U.S. Federal Reserve to mark up interest rates had already been reflected in the market and are not new factors.

Others said that the drop in the competition rate for home subscription accounts, which is a sign of future demand, and a rise in unsold new apartments are signs that the housing market may experience problems in the coming months. In December alone, the total numbers of unsold apartments hit 60,000 units, which is relatively high.

yonngong@yna.co.kr
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