South Korean Banks' Home-Backed Loans Soar as Borrowing Costs Hit Record Lows

South Korean banks' home-backed loans continued to grow at a rapid pace in July, with outstanding bank mortgage loans reaching a record high of 257.8 trillion won. The central bank has attributed this growth to record-low borrowing costs and rising housing prices. As lenders deal with loan demands made before regulations on mortgage lending were strengthened, home-backed loans expanded by 3.5 trillion won in June, the fastest growth in more than two years. Meanwhile, bank loans to companies swung to the black in July, with corporate loans reaching 507.5 trillion won, up 2.4 trillion won from June.

Key Takeaways:

• South Korean banks' home-backed loans grew by 3 trillion won (US$2.45 billion) in July, reaching a total of 257.8 trillion won.
• The central bank attributed the growth to record-low borrowing costs and rising housing prices.
• The Bank of Korea (BOK) cut its key interest rate by a total of 3.25 percentage points to a record low of 2% between October and February.
• Local banks' home-backed loans expanded by 3.5 trillion won in June, the fastest growth in more than two years.
• The BOK allowed lenders to extend mortgage loans up to 50% of the value of a residence in Seoul and its adjacent areas, down from 60% to mitigate risks.
• Korean banks have been scrambling to increase mortgage lending this year, stoking worries about an unusual surge in housing prices.
• Bank loans to companies swung to the black in July, with corporate loans reaching 507.5 trillion won, up 2.4 trillion won from June.
• Lending to larger firms rose by 1.8 trillion won on-month to 79.6 trillion won while loans to smaller companies rose by 500 billion won to 428 trillion won.
• The central bank is widely forecast to freeze the benchmark seven-day repo rate for the sixth straight month.

Statistics:

• 257.8 trillion won: Outstanding bank mortgage loans as of the end of July
• 3 trillion won (US$2.45 billion): Growth in home-backed loans in July
• 3.5 trillion won: Growth in home-backed loans in June, the fastest in more than two years
• 3.25 percentage points: Total reduction in BOK's key interest rate between October and February
• 2%: BOK's key interest rate at a record low
• 507.5 trillion won: Local banks' corporate loans in July, up 2.4 trillion won from June
• 79.6 trillion won: Lending to larger firms in July, up 1.8 trillion won on-month
• 428 trillion won: Loans to smaller companies in July, up 500 billion won on-month

Sources:

• "South Korean banks' home-backed loans continued to grow by over 3 trillion won (US$2.45 billion) in July amid record-low borrowing costs and rising housing prices, the central bank said Monday." - Asia Pulse
• "As of the end of July, outstanding bank mortgage loans amounted to 257.8 trillion won, up 3.4 trillion won from a month earlier, the Bank of Korea (BOK) said." - Asia Pulse
• "The data comes as the financial regulator in early July toughened regulations on bank mortgage lending by allowing lenders to extend such loans amounting to up to 50 per cent of the value of a residence in Seoul and its adjacent areas, down from 60 per cent." - Asia Pulse
• "The BOK cut its key interest rate by a total of 3.25 percentage points to a record low of 2 per cent between October and February in a bid to bolster the slowing economy." - Asia Pulse
• "Local banks' corporate loans reached 507.5 trillion won last month, up 2.4 trillion won in June, it added." - Yonhap
• "Lending to larger firms rose by 1.8 trillion won on-month to 79.6 trillion won while loans to smaller companies rose by 500 billion won to 428 trillion won." - Yonhap