Seoul: South Korean banks are expected to tighten their criteria on extending loans to households in the third quarter amid the government's efforts to rein in surging household debt and home prices, a survey by the central bank showed Tuesday. The index gauging banks' attitude toward lending stood at minus 17 for the July-September period, down 4 points from the previous quarter, according to the poll of 203 financial institutions conducted by the Bank of Korea (BOK).

According to Yonhap News Agency, a reading below zero means that a majority of lenders will tighten lending standards. "Lending standards for both mortgage and unsecured loans are expected to tighten, as tighter debt-to-service ratio (DSR) rules took effect in July and additional household debt management measures were implemented on June 28," a BOK official said.

Major lenders began tightening lending rules in the second half of 2024 under pressure from financial authorities aiming to rein in surging household debt and rising home prices in Seoul and surrounding areas. But some of those restrictions were eased earlier this year, while brief market deregulatory moves and market expectations of a housing boom under the new liberal government have fueled demand for home purchases, leading to a sharp rise in household borrowing in recent months.

In June, household loans extended by South Korean banks rose by the largest margin in 10 months, driven by an increase in housing transactions and surging home prices. In an effort to curb rising household debt and housing prices, authorities late last month capped home-backed loans for property purchases in the capital area at 600 million won (US$434,184) and implemented a series of other restrictive measures.

"Household loan demand is expected to decline due to tighter regulations, while demand for corporate loans will rise amid growing funding needs caused by domestic and global economic uncertainties, and sluggish business conditions," the official added.