Mortgages See Biggest Jump in 27 Months
By Kim Jae-kyoung
Staff Reporter
Loan growth at local lenders shifted onto an upward trend in February, with mortgages recording the biggest jump in more than two years, according to the Bank of Korea (BOK).
In its monthly report on household loans, the central bank said that the outstanding balance of household loans at local banks jumped to 390.17 trillion won in February, up 2.97 trillion won from the previous month.
It was a turnaround from January's 1.38-trillion-won decline due to the deepening economic downturn. In January, household lending declined 3.3 trillion won, marking the steepest monthly fall in more than five years.
The increase was mainly due to a jump in mortgages, which increased 3.32 trillion to 244.79 trillion won during the period. It marked the largest monthly gain since November 2006 when such lending increased by 4.23 trillion won.
``Local banks saw their loans to households rise sharply in February as mortgages surged on the back of the government measures to ease real estate regulations and record-low borrowing costs,'' a BOK economist said. On Thursday, the BOK froze its key interest rate at a record low of 2 percent for the second-straight month.
The sharp rise in mortgages is raising concerns over the financial health of local banks, as an extended economic recession is likely to make more bank loans turn sour.
Market analysts said that if the economic downturn is prolonged, it is highly probable that the financial soundness of local lenders will be tested again.
``With the economic recession extended, it is inevitable that financial services firms will see their profitability and financial health deteriorate,'' Korea Institute of Finance economist Shin Yong-sang said.
According to industry sources, most local banks have shifted to surpluses in the first quarter from the previous quarter's red ink on the back of a fall in the overdue rate. But it is too early to conclude that their business performances have turned around because the economy is still in a slump.
``Overdue loans that have grown since the fourth quarter of last year will affect local banks' balance sheets from the second quarter,'' a local bank official said.
``The fall in the rate in March was due to their strengthening of risk management and write-downs of problem loans during the quarter-end period,'' he added.