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Confusion is deepening over the country's household debt measures, muddled by contradictory directives from the two financial authorities on leverage volume and borrowing limits, market watchers said Thursday.

Central to the concern is the country's over 708.5 trillion won ($512 billion) in household loans extended by the top five commercial lenders as of end-June. The 35-month high was up 5.3 trillion won from a month earlier.

The increase of 2.3 percent in just six months since last December has already surpassed the government's annual target of 2 percent.

The Financial Supervisory Service (FSS) convened a meeting Wednesday to recommend the country's banks against excessive expansion of household loans, urging them to cap the annual leverage growth rate at 2 percent. The FSS' on-site inspections will begin July 15 to verify compliance with the debt service ratio (DSR) measures overseen by the Financial Services Commission (FSC).

However, the debt-curbing drive was in direct contradiction to the FSC's delayed plan to implement a DSR stress test whereby a stress rate of between 1.5 percent and 3 percent, essentially a premium, will be applied. The FSC says this will in turn lower the total leverage volume.

The FSC said the implementation scheduled for July 1 was postponed to September, due to considerations for the financial condition of self-employed and real estate project financing businesses — reasons few believe have merit.

“It was unconvincing of the authorities, to say the least,” an industry observer said on condition of anonymity.

The DSR stress test needed to take effect, as warranted by household debt levels showing signs of upward movement, in his view.

More perplexing was, he said, how real estate project financing comes into the picture, since construction projects are irrelevant to the strengthened borrowing regulations.

“One side is making room for household debt to grow, while the other side is desperate to contain the fallout from the sudden course correction," he said.

The commercial lenders ended up raising borrowing rates, Thursday, mindful of the FSS' warning.

“We have scrapped some interest rate policies that lowered borrowing costs,” a Hana Bank official said.

The easiest and most effective tool to reduce household loans is interest rate adjustments, he added, rather than reducing the outstanding balance total of household loans.

“We plan to recalculate borrowing rates for the time being, coupled with thorough loan condition assessments,” he said.