Financial Services Commission Chairman Kim Byoung-hwan / Yonhap

The country's top financial regulator is coming under heavy criticism for a months-long spike in household debt, a consequence of a delay in implementing fortified household debt curbing measures, market watchers said Sunday.

The last-minute delay of two months to September accelerated the recovery of leveraged investments, as highlighted by surging demand for overdrafts, unsecured loans and margin loans from brokerages. Most of the funds are expected to uplift the stock market, a source of great enthusiasm for short-term rapid gains in valuation after the Aug. 8 equity market rout.

The Financial Services Commission in July sought to put in place the fortified rule, defined by the phase 2 stress debt service ratio measure. It applies credit-specific add-ons to lower borrowing limits relative to borrowers' income.

According to market data, the outstanding balance of household loans granted by the country's top five commercial lenders — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — came to 561.1 trillion won ($414 billion) on Aug. 7, up 1.4 trillion won from end-July.

The increase is a continuation of a sharp spike since May when the month-on-month figure came to 5.3 trillion won, followed by 5.8 trillion won in June and 7.5 trillion won in July.

"The months of rushing to borrow to the maximum extent possible will continue for weeks before a peak by the end of this month," an industry watcher said.

The rush is understandable since the borrowing limit will only tighten in the months to come in accordance with the government directive to keep the household debt-to-GDP ratio below 90 percent.

Currently, the ratio is over 93 percent — still among the highest in the world — despite the base year change that led to a decline of about 6 percentage points in the previous figure of about 100 percent.

"Many borrowers want to take out the highest borrowable amount possible, as long as they can pay interest on their loan," the industry watcher added. "They consider it an opportunity to boost their asset value, judging that the time is on their side to sustain the upward trajectory."

This line of thinking has been the driver of rapid growth in the number and amount of overdrafts and margin loans.

The five lenders' new overdraft loans came to 748.9 billion won from Aug. 1 to 5. The end-July figure was 37.8 trillion won.

Unsecured loans over the same period climbed by 580.3 billion won to 92.7 trillion won.

Margin loans totaled 19.2 trillion won, Aug. 5, up 10 percent from 17.5 trillion won at the end of last year.

The three loans charge higher interest rates, with the brokerage-mediated loan carrying a risk of facing margin calls whereby securities firms can sell borrowers' shares at the lowest price to recover loans in cases of steep price falls.

An overdraft extends a certain limit on funds borrowable even when the account holder has insufficient funds. Interest is charged only on the amount spent.