S.Korea asks banks to control mortgage loan growth

SEOUL, June 26 (Reuters) - A South Korean regulator has advised banks to refrain from home-backed lending, an official said on Friday, with stable borrowing costs and loosened rules over property transactions starting to drive home prices higher.

As the government push for lending to small and medium-sized companies seems to have run its course, South Korean banks have turned to home-backed loans to meet demand for new home purchases and from households switching from credit loans.

"We advised them to restrain themselves," a senior official of the Financial Supervisory Service (FSS) told Reuters by telephone.

"The recent (home-backed) loan growth has been heavy, and some property markets have shown signs of overheating. We are concerned about herd behaviour towards home-backed lending and asset quality."

It was the first time in several months the financial industry regulator has used the word "restraint" in relation to lending by banks.

The Korea Economic Daily reported that the FSS had recently convened a meeting with executives of banks overseeing mortgage loans and urged them to control loan expansion.

Home-backed loans owed by financial services firms in the country totalled 328.7 trillion won ($257 billion) as of the end of May, including a net 14.9 trillion won expansion since the start of this year, according to FSS.

The government said in a joint statement on Thursday that it would take pre-emptive measures, such as tightening lending criteria, if necessary to cope with a rise in home-backed securities. ($1=1281.1 Won) (Reporting by Kim Yeon-hee; Editing by Chris Lewis)