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When South Korea announced new lending curbs last month, Joe Park, a 34-year-old grocery chain purchasing manager, scrambled to borrow more money before the tighter rules took effect.

After his loan broker said no, he sought alternative financing that included much costlier credit card options, knowing such loans would leave him with less money for food and savings.

A debt binge fuelled by young Koreans like Park desperate to invest is one of the trends worrying the country’s central bank, which could deliver its first interest rate rise in three years on Thursday.

“It’s extremely unfair that they are cutting loan limits now. My credit rating is perfect, and I am ready to pay more interest payment if policy rates go up,” said Park, who claims he has never been behind on his bills since he started working five years ago. “So why cut loans? Am I in a socialist country?”

One particular concern for policymakers is the fact that recent curbs appear to have had little immediate impact on such borrowing.

Bank lending to households for mortgages, stocks and living expenses rose 168.6 trillion won from a year earlier to a record 1,805.9 trillion won ($1.54 trillion) in the June quarter — that’s roughly equivalent to the country’s GDP and the biggest annual increase since the central bank began releasing relevant data in 2003.

Even after the government enforced new caps on bank loans in July, lending to households grew by 9.7 trillion won last month alone, bigger than June’s 6.3 trillion won increase before the new rules kicked in.

Many millennials like Park have resorted to “bittoo,” Korean slang for borrowing to invest, as the only way to outpace richer baby boomer parents, having seen President Moon Jae-in’s policies to make housing cheaper fail time and again.

Park has taken out 120 million won ($102,263.43) from his overdraft account to trade stocks, but his frustration at being priced out of one of the world’s hottest real estate markets has turned into desperation.

Analysts say the debt surge shows no sign of slowing even after local lending rates began their upward trajectory a few weeks ago and policymakers signalled higher rates.

Risks among young Koreans have been building for some time.

Koreans under 40 purchased 272,638 apartments in 2020, a near 77% jump from a year earlier, outweighing the 64% and 63% rises seen respectively in those in their 40s and 50s.

Those in their 30s are heavily exposed as the most indebted relative to their income, with total borrowings amounting to about 270% of their annual income, central bank data showed.

Loan brokers say more clients are heading to high-cost lenders, which will eventually worsen household finances and hit private consumption, which accounts for about half of the economy.

“As banks cut loans, those who need money will seek other ways,” said Kong Dong-rak, an economist at Daishin Securities. “Some will go to their parents, and then to high-cost lenders to skirt restrictions, and end up with bigger risks.”

Having failed to cool property speculation after dozens of separate tax and loan restrictions, the government last month pleaded with the public to stop their debt binge.

The Financial Services Commission (FSC) in July further tightened the maximum amount of bank loans that individuals can take relative to their incomes to 40%, and vowed to tighten limits further as debt threatened financial stability.

Local banks are noticeably cutting loans.

Nonghyup Bank, popular with the working class and farmers, last week suspended mortgage lending and loans for rent deposits. Woori Bank also said it stopped approving mortgage lending until the end of September, while Kakao Bank is among those considering loan curbs.

All that appears to have done is drive borrowers to higher-cost lenders not bound by the same restrictions.

“Many of my clients with top credit ratings are going to credit card loans because I had to turn them down,” said a loan broker at Standard Chartered Bank Korea, who agreed to be identified only by the surname Lee.

In July, Bank of Korea Governor Lee Ju-yeol said most of the bank’s board agreed it was time to make financial imbalances a priority, and that adjusting policies could help curb housing market bets.

Last week, incoming chief at the FSC Koh Seung-beom pledged to take action and said household debt management was his top priority.

For Park, there’s an irony that tighter lending standards are making things less affordable.

“I want to borrow more because everything’s gone up, be it rents, stocks, but my pay hasn’t. I don’t understand why the government doesn’t get this.”

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