SEOUL: 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.

       A debt binge fuelled by young South Koreans like Park desperate to invest is one of the trends worrying the country’s central bank, which could deliver its first interest rate rise in three years today.

       “It’s extremely unfair that they are cutting loan limits now. My credit rating is perfect, and I am ready to pay more interest payment if policy rates go up,” said Park, who claims he has never been behind on his bills since he started working five years ago. “So why cut loans? Am I in a socialist country?”

       One particular concern for policymakers is the fact that recent curbs appear to have had little immediate impact on such borrowing.

       Bank lending to households for mortgages, stocks and living expenses rose 168.6 trillion won (RM609.34bil) from a year earlier to a record 1,805.9 trillion won (US$1.54 trillion or RM6.49 trillion) 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.

       Even after the government enforced new caps on bank loans in July, lending to households grew 9.7 trillion won (RM35.05bil) last month alone, bigger than June’s 6.3 trillion won (RM22.77bil) increase before the new rules kicked in.

       Many millennials like Park have resorted to “bittoo”, South Korean slang for borrowing to invest, as the only way to outpace richer babyboomer parents, having seen President Moon Jae-in’s policies to make housing cheaper fail time and again.

       Park has taken out 120 million won (US$102,263 or RM431,040) 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.

       Risks among young South Koreans have been building for some time. Those under-40 purchased 272,638 apartments in 2020, a near 77% jump from a year earlier, outweighing the 64% and 63% rises seen respectively in those in their 40s and 50s.

       Those in their 30s are heavily exposed as the most indebted relative to their income, with total borrowings amounting to about 270% of their annual income, central bank data showed.

       Loan brokers say more clients are heading to high-cost lenders, which will eventually worsen household finances and hit private consumption, which accounts for about half of the economy.

       “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.”

       Having failed to cool property speculation after dozens of separate tax and loan restrictions, the government last month pleaded with the public to stop their debt binge.

       The Financial Services Commission (FSC) in July further tightened the maximum amount of bank loans individuals can take relative to their incomes to 40%, and vowed to tighten limits further as debt threatened financial stability. — Reuters