The head of the financial watchdog on Tuesday called for banks to curb a continuing rise in household lending.

Lee Bok-hyun, chief of the Financial Supervisory Service, made the call in a meeting with the heads of 18 banks.

"Should we fail to keep household debts at a proper level in the future, it may lead to increased economic burden by expanding market volatility and working as an obstacle to economic growth," Lee told the meeting.

Tuesday's meeting follows reports that household loans extended by local lenders grew at a record pace in August.

Lee noted household loans extended by all financial institutions increased by 9.5 trillion won (US$7.06 billion) last month, up from 5.2 trillion won the previous month and 4.2 trillion won in June.

"Also, local banks have a very high dependence on real estate-related loans, causing concerns of a drop in their fiscal soundness in case of a decline in housing prices," Lee said, noting home-related loans currently make up more than 78 percent of all household loans extended by banks.

The FSS chief called on the local banks to voluntarily tighten their household loan screening to this end.

"Government regulations on household loans are the minimum criteria that need to be observed, and so I believe banks need to voluntarily strengthen their risk management efforts," he said. (Yonhap)