Korea’s financial watchdog said Sunday that it will look into the state of home-backed lending offered by non-banking financial institutions as part of its efforts to keep tabs on the overall surging household debts.

Savings banks, insurers, credit finance firms and other non-banking financial agencies are the destination for many people seeking to borrow money after being rejected by banks due to their poor credit backgrounds.

Their lending is focused on home-backed loans, which are estimated at 130.7 trillion won ($115.6 billion), 42.3 percent of the total outstanding lending by the non-banking sector, according to industry data.

The Financial Supervisory Service said that it will especially look into the so-called loan-to-value ratios by which non-banking financial institutes provide home-backed loans to clients.

The LTV ratio is one of the main tools to curb household loans by restricting the maximum amount of money that homeowners can borrow in line with the value of their collateral.

The higher ratio means higher risks that borrowers could default on their debts. The ratio among the non-banking sector is usually higher than major banks, raising fears that they are more vulnerable to default risks down the road.

“There are many cases in which people resort to the non-banking sector after being rejected by banks due to a low estimated value of their collaterals,” an FSS official said. “The real danger (related to household debts) does not lie in banks but in the non-banking sector.”

The probe will also be expanded into loans among the non-banking sector backed by such properties as stores, factories, land and other properties, the watchdog said.

The move comes amid growing concerns that soaring household debts could serve as a major drag on the economy by dampening consumption and undercutting the overall growth. (Yonhap News)