South Korea’s top financial regulator said Friday that the government-backed loan scheme has contributed to helping household borrowers lower their debt-servicing burden and steadily repay loans by changing the structure of mortgages.
Under government backing, local lenders had extended 20 trillion won ($18.3 billion) in loans to help borrowers convert their short-term floating-rate mortgages into longer, fixed-rate ones in order to rein in ballooning household credit.
The FSC has decided to pump an additional 20 trillion won into the fund as the first batch for the loan program ran out in just five days.
“The loan program has influenced the structure of bank loans in a positive way,” said Financial Services Commission Chairman Yim Jong-yong said in a meeting with heads of local banks. “It encourages people to repay loans from the beginning and reduced the risk of financial volatility.
Yim said more than 330,000 borrowers have benefited from the fixed-rate loan program.
Most home-backed bank loans are non-amortized loans, requiring debtors to pay back the lump sum principal upon maturity. Such loans are heavily susceptible to changing interest rates.
He said the galloping family debt is one of the biggest risks in the local financial market, and he will do his best to bring it under control.
Household debt has been a pain in the neck for local policymakers as it stunts consumer spending and weighs on the national economy, which has been slowing in recent years.
The pace of gains in household credit has been faster since the government in August eased rules on mortgage loans to stimulate the sagging property market.
The central bank chimed in by lowering its policy rates twice in the second half of last year and once again in March to a record low of 1.75 percent
According to central bank data, South Korea’s household loans totaled 1,089 trillion won as of end-December, with mortgage loans reaching 460.6 trillion won, 42 percent of the total. (Yonhap)
