BOK warns of financial imbalances due to rising housing prices, household debt

Seoul, Sep 25 (IANS) South Korea's financial system remains stable, but persistent expectations of rising home prices could fuel financial imbalances, the central bank said on Thursday.

"The country's financial system generally remains stable, supported by the resilience of sound financial institutions and strong external payment capacity. But expectations of rising housing prices in Seoul persist, causing concerns about financial imbalances," the Bank of Korea (BOK) said in its report on financial stability, reports Yonhap news agency.

The government has introduced a series of measures to curb surging housing prices and household debt, including tighter lending regulations and plans to increase housing supply, which have led to a significant drop in home transactions.

"But the index on housing price expectations has risen since August, and some areas in Seoul have seen price growth accelerate again since the start of September," the BOK noted.

Household loans in the financial sector rose by 2.3 trillion won in July, down sharply from June's 6.5 trillion-won increase.

But in August, loan growth accelerated again by expanding 4.7 trillion won, partly because of home transactions from May and June being reflected with a time lag.

"Given that the slowdown in housing prices in Seoul and the greater metropolitan area remains limited, it is necessary to maintain a strong macroprudential policy stance to manage housing market expectations," the BOK said.

Last month, the central bank held its key rate steady for the second consecutive time amid concerns about financial stability despite the need to boost economic growth momentum.

BOK Governor Rhee Chang-yong said that delaying a rate cut by a month or two would have little impact on the economy, but a sharp rise in home prices "would make things even more difficult.

—IANS

na/