Foreign currency-denominated loans extended by South Korean banks to residents grew by US$1.28 billion in the first half from six months earlier on increased dollar demand to cover import bills, the financial watchdog said Tuesday.

Outstanding foreign currency loans amounted to $31.21 billion as of the end of June, compared with $29.93 billion at the end of last year, according to the Financial Supervisory Service (FSS).

In the second quarter, such lending grew by $950 million, faster than the $330 million in the first quarter, it said.

Residents include individual citizens and firms but not foreign nationals with residency status. The data excludes inter-bank foreign currency loans.

The FSS said that large companies' dollar demand rose to cover expenditures for shipbuilding and overseas plants as well as import costs while a weaker yen drove down the dollar conversion value of yen-denominated loans.

Dollar-denominated loans amounted to $20.77 billion as of end-June, up $4.08 billion from the end of last year, it noted. But Japanese currency loans totaled $10.26 billion, down $2.83 billion from six months earlier.

The delinquency rate of foreign currency-denominated loans came in at 0.84 percent as of end-June, up 0.01 percentage point from the end of last year.

But the second-quarter figure compared with 0.77 percent as of end-March as soured bad debt in ailing sectors like shipbuilders increased, but it is seen as being manageable, according to the FSS.

The regulator said that it plans to strengthen its supervision on local banks' foreign currency loans, given concerns that the Federal Reserve's expected monetary stimulus tapering is feared to increase currency volatility. (Yonhap News)