February 21, 2014 / 7:10 AM / in 6 years

S Korea will make banks give more fixed-rate home loans - official

SEOUL, Feb 21 (Reuters) - South Korea plans to require banks to have a higher minimum proportion of fixed-rate and amortising loans in their mortgage portfolios, an official at the country’s financial regulator told Reuters on Friday.

Under the existing mandate from the Financial Services Commission, banks must have at least 30 percent of their mortgage portfolio in fixed-rate loans, and another 30 percent in amortising loans, by 2016.

The commission official, who declined to be identified, did not specify how big an increase will be imposed. But officials said last week banks might have to increase the minimum level for each type of loan to 40 percent of their mortgage portfolios by 2016.

A higher minimum proportion would supplement efforts by regulators to push consumers towards more structurally-sound loans. While figures are not available, industry and government officials say a significant proportion of borrowers carry variable-rate loans or interest payment-only loans, leaving them exposed to sudden jumps in repayment obligations.

As the U.S. Federal Reserve winds down its bond-purchase programme, analysts and policymakers worry that the expected rise in interest rates in response to this stimulus reduction could further constrain private consumption and drag overall economic growth lower.

At the end of 2013, according to the commission, fixed-rate loans accounted for 15.9 percent of banks’ mortgage portfolio while amortising loans accounted for 18.7 percent. (Reporting by Lee Changho; Writing by Se Young Lee; Editing by Richard Borsuk)

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