S.Korean households move to higher interest rate loans amid tightened bank lending standards

South Korean households moved towards higher interest rate loans as banks tightened lending standards amid fast-growing debts, financial watchdog data showed Thursday.

Household loans by banks increased 6 trillion won (5.3 billion U.S. dollars) in the January-March quarter, down 3.9 trillion won compared with a year earlier, according to the Financial Supervisory Service (FSS).

The first-quarter increases accelerated from 9.7 trillion won in 2015 to 9.9 trillion won in 2016, before tumbling to 6 trillion won this year as banks tightened loans to households.

The tightened bank lending moved households demand from banks to non-deposit takers, including savings bank, insurers and community credit cooperatives that demand higher lending rates than banks.

Debts owed by households to the non-deposit takers jumped 9.3 trillion won in the first quarter, higher than an 8 trillion-won expansion in the same period of last year.

South Korea's household debts have increased fast in recent years as the Bank of Korea (BOK) cut the benchmark interest rate from 3.25 percent in July 2012 to an all-time low of 1.25 percent in June last year.

The BOK said lower borrowing costs would boost private consumption when the bank cut the policy rate below 2 percent, the previous lowest level recorded at the peak of the 2008 global financial crisis.

However, it produced a reverse effect as the lower rate encouraged households to purchase houses with borrowed money. Massive debts increased debt-serving burden on households, which refrained from spending money. Endit