When South Korea announced new lending curbs last month, Joe Park, a 34-year-old grocery chain purchasing manager, scrambled to borrow more money before the tighter rules took effect.
After his loan broker said no, he sought alternative financing including much costlier credit card options, knowing such loans would leave him with less money for food and savings.
Bank lending to households for mortgages, stocks and living expenses rose 168.6 trillion won from a year earlier to a record 1,805.9 trillion won in the June quarter, roughly equivalent to the country's GDP and the biggest annual increase since the central bank began releasing relevant data in 2003.
Park has taken out 120 million won from his overdraft account to trade stocks, but his frustration at being priced out of one of the world's hottest real estate markets has turned into desperation.Analysts say the debt surge shows no sign of slowing even after local lending rates began their upward trajectory a few weeks ago and policymakers signalled higher rates.
"As banks cut loans, those who need money will seek other ways," said Kong Dong-rak, an economist at Daishin Securities. "Some will go to their parents, and then to high-cost lenders to skirt restrictions, and end up with bigger risks." All that appears to have done is drive borrowers to higher-cost lenders not bound by the same restrictions.
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