Bank loans to households increased at a slower pace in August.

A citizen walks past a row of cash machines in Seoul. (Yonhap)

Household loans from South Korean banks grew at a slower pace in August compared to the previous month mainly due to slower growth in overdrafts for equity investments, central bank data showed on Wednesday.

Bank loans outstanding to local households stood at 1,046.3 trillion won ($ 898 billion) at the end of August, up 6.2 trillion won from the previous month, according to Bank of Korea data. (BOK).

The August reading slowed from an increase of 9700 billion won in July, the data showed.

The BOK said loan growth had slowed as people paid off unsecured loans taken out to subscribe to the initial public offerings of several companies.

Unsecured and other non-mortgage loans increased by 300 billion won to 281.1 trillion won, from a monthly gain of 3.6 trillion won in July.

In August, demand for bank guaranteed loans remained strong despite tighter credit rules.

Mortgage loans from banks increased by 5.9 trillion won in one month to 764.2 trillion won. This is the fourth largest monthly gain for an August since 2004, when the BOK began compiling related data.

Since July, the financial regulator has applied a stricter calculation of loans for mortgages, called the debt service ratio, with the aim of reducing household indebtedness.

Household loans from banks and financial institutions rose 8.5 trillion won in August, from 15.3 trillion won on a month-to-month basis in July, according to separate data from the Financial Services Commission.

In August, the BOK last month raised its benchmark interest rate by a quarter of a percentage point to 0.75%, from a record low of 0.5%, marking the first rate hike in the pandemic era.

BOK Governor Lee Ju-yeol has hinted that the central bank may raise the policy rate again this year or early next year. (Yonhap)

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