The financial regulator called on local banks Wednesday to curb a rise in their household loans, citing recent increases in home-backed loans. Lee Joon-soo, a senior deputy governor of the Financial Supervisory Service (FSS), made the call in a meeting with deputy heads of 17 local banks and nonbank lenders, while underscoring the possibility of a steep increase in household loans during the remainder of the year. He "stressed the need to preemptively control the rise in household debts, noting that there is a possibility of the increase in household loans accelerating in the second half of the year due to growing hopes for an interest rate reduction and a rise in home prices," the FSS said in a press release. The financial regulator said household loans extended by banks rose by 6 trillion won (US$4.32 billion) in June from a month earlier, following a 5.1 trillion-won on-month increase in May that marked a turnaround from two consecutive months of drop. "Expanding household loans is not desirable, whil e there is an urgent need to strengthen the fiscal soundness of banks amid a rise in the delinquency ratio on household loans and real estate project financing (PF) loans," Lee was quoted as saying at the meeting. To this end, Lee asked the banks to limit the annual increase in their household loans to their earlier set goals, the FSS said, adding that major banks in the country had promised to limit their increases to between 2-3 percent. Lee also called on the banks to strictly implement the debt service ratio (DSR), which measures how much a borrower has to pay for principal and interest in proportion to his or her yearly income, which serves as a ceiling on aggregate lending. "To maintain the soundness of household loans, banks need to make their decisions based on the borrower's ability to pay back the loan, instead of the value of collateral," he told the meeting, according to the FSS. Lee also unveiled plans by the financial regulator to inspect local banks to make sure all related regulations on h ousehold loans are observed. Source: Yonhap News Agency