S. Korea Regulator Blames Banks for Household Debt

Financial Services Commission Chairman Choi Jong-ku said Wednesday that domestic banks are responsible for soaring household debt, dropping hints at stronger regulation on their lending practices.

Choi, appointed as the top financial regulator last week, said banks have contributed to the country’s snowballing household debt by increasing “safer” collateralized loans to households, Yonhap reported.

“It is problematic that banks’ main revenue sources are loans to households and they rely heavily on mortgages for profits,” he told a press conference. “In the past, KB Kookmin Bank was the only lender focusing on loans to small- and medium-sized enterprises and households as a special bank. These days, however, others have joined in and this has created increased household debt.”

His remarks came after Korea’s household debt ballooned to top 1,400 trillion won ($1,250 billion) last month. Choi noted that the growth rate is at an alarming level. The rise was attributable to increased mortgages.

Buoyed by mortgages and other loans to households, banks have posted record high earnings in the first half of this year. The aggregate net profit of the four largest banks reached 4.34 trillion won.

“I’m not saying earning a lot is bad. And the problem of household debt is not the single fault of banks,” Choi said. “However, it is questionable whether their business practices are socially desirable, even though expanding loans to households is profitable.”

Choi said the FSC may opt to penalize banks if they extend too many loans to households so that their Bank of International Settlements capital adequacy ratios go down.