S.Korea's non-bank household debts double on tightened bank loan

Non-bank household debts in South Korea doubled in the first half of this year due to tightened standards for bank loans, a central bank report showed on Thursday.

As of May 20, household debts extended by non-bank institutions reached 407.4 trillion won (353.62 billion U.S. dollars), up 15.9 trillion won compared with the end of last year, according to a report submitted by the Bank of Korea (BOK) to the National Assembly.

The first-half increase of 15.9 trillion won almost doubled a growth of 8.8 trillion won tallied in the first half of 2015. Among the total, mortgage loans amounted to 147.6 trillion won as of May 20, up 7.2 trillion won from the end of last year.

Non-bank institutions include mutual savings banks, insurers, village-level banking institutions and credit unions, which provide loans with higher lending rates than banks for low-credit borrowers.

As banks tightened standard for loans, low-credit households flocked to non-bank institutions for high-rate loans.

The BOK cut its benchmark interest rate by 25 basis points to an all-time low of 1.25 percent earlier this month, boosting worries further about the already massive household debts that have kept a record-breaking trend.

Banks' household debts stood at 660.9 trillion won as of end-May, up 21.8 trillion won from the end of last year amid the record-low interest rate.

The 21.8 trillion-won increase was lower than a growth of 33.6 trillion won in the first half of last year, indicating loan demand moving from banks to non-bank institutions. Endit