By Kim Tae-gyu
Staff Reporter
As soon as South Korea's top financial bureaucrats raised warning flags on snowballing mortgages, the country's obedient banks set in motion attempts to slash the loans.
Woori Bank, the country's second-largest lender in assets, is pondering limits on collective mortgages for apartment complexes that are unlikely to sell out.
``Should we extend house-backed loans to all the purchasers of an unpopular apartment complex, they have a shot at becoming non-performing loans,'' a Woori Bank spokesman said.
``Hence, we are considering reducing the loan-to-value ratio (LTV) for mortgages that are likely to cause problems although we have yet to decide any specific schemes,'' he said.
The LTV refers to a percentage of the outstanding debt on real estate to its market value. Presently, the LTV should be lower than 60 percent ― mortgages should be less than 60 percent of the value of the property, with a limitation of 40 percent in speculation zones.
What Woori Bank is attempting to do is to lend substantially less, perhaps 50 percent or 40 percent of home values in non-speculation zones, to some home buyers.
Shinhan Bank, the third-largest lender, is looking to control the amount of total mortgages if the overall quantity continues to rise this month.
Hana Bank, the No. 4 lender, is also considering the limitation of mortgages to those with bad credit ― and not extending house-backed loans to those with the worst credit standings.
Other banks came up with similar steps after the Financial Services Commission (FSC) warned against rocketing loans ― the amount of mortgages jumped by 3 trillion won in May from a month ago, which is the fastest growth in several years.
``We see some speculative demands in recent home mortgages. If the trend doesn't dwindle, we will consider beefing up regulations on the loans,'' FSC Secretary-General Kwon Hyouk-se said earlier this week.
The FSC said it did not force banks to control the mortgages, but employees of banks countered that they felt the pressures.
``Last month, the financial regulator asked us to report details on our home mortgages such as the total amount or risks of them,'' said a banking source, who declined to be named.
``It was tantamount to a tacit instruction that we should control mortgages. You know that is how things work between regulators and banks in Korea,'' he said.