SEOUL, March 9 (Xinhua) -- Dependence of South Korean households on lenders demanding higher interest rates increased sharply in January amid the growing balloon effect, in which low-credit borrowers move to non-banking lenders on the tightening lending standards by commercial banks, central bank data showed on Thursday.
Outstanding household loans extended by savings banks, which demand higher lending rates, were 19.26 trillion won (16.7 billion U.S. dollars) as of end-January, up 977.5 billion won from a month earlier, according to the Bank of Korea (BOK).
The January growth more than doubled 437.8 billion won of increase in household loans by savings banks in the previous month, marking the biggest monthly growth since the BOK began compiling the data in October 2003.
Borrowers with low credit and low income tend to rely on non-banking lenders. Heavier dependence on savings banks indicate heavier debt-servicing burden among households.
Lending rates to households by savings banks stood at an annualized rate of 15.5 percent in January, more than quadrupling 3.39 percent by commercial banks.
Banks tightened lending standards, sending low-credit borrowers to non-banking lenders. It followed recent rate hikes in the domestic market on expectations for the U.S. Federal Reserve's rate increases in the near future.
After raising the benchmark rate by a quarter percentage point in December, the Fed heralded three rate hikes in 2017 alone. The next rate increase is forecast to come as early as this month.
Household loans by banks reduced 2.09 trillion won in January, but those by non-banking institutions, including savings banks, credit unions and credit cooperatives, expanded by 2.94 trillion won.