Household Loans Increased by 40 Percent

The bank loans to household rose by over 40 percent within a year.

The Financial Supervisory Service (FSS) revealed yesterday in `the report on the soundness of household loans for 19 commercial banks and 5 insurance companies` that the aggregate outstanding household loans stood at 136.95 trillion won as of the end of September, up 40.1 percent from a year earlier. And the ratio of loans classified as substandard or below to the total loans increased to 1.03 percent as of the end of September from 1.02 percent at end of last year.

On the other hand, the ratio of loan-loss reserves to the total household loans declined to 39.93 percent from 45.93 percent during the same period, signaling the poor operation of household loans. Unpaid private loans accounted for 1.67 percent, or 2.29 trillion won of the total private loans.

The FSS ordered all banks to improve their Consumer Credit Rating Systems (CSS), to strengthen the inspection on the debt payment ability of the debtors, to set aside larger reserve funds for loss, and to fortify the management system on the unpaid loans.

In particular, the FSS directed 7 banks such as Kookmin, Shinhan, Koran, Hana, Daegu, Pusan, and Jeonbuk whose reserve ratio fell short of the average, and four banks such as Korea Exchange Bank, Kwangju Bank, Industrial Bank and National Agricultural Cooperative Federation whose reserve recently declined sharply to secure more reserve fund.

And the FSS ordered 5 banks such as Peace, Kwangju, Cheju, Kyungnam, and National Federation of Fisheries Cooperatives to establish the plan to lower the ratio of loans classified as substandard or below to the total loans and the unpaid loan ratio, which were higher than the bank average.

Lee Byong-Ki eye@donga.com