Kim Byoung-hwan, the nominee for the new head of the Financial Services Commission, answers questions from reporters, July 5, at his temporary office in Seoul where he is preparing for a National Assembly confirmation hearing slated for Monday. Yonhap

Kim Byoung-hwan, the nominee to head the Financial Services Commission (FSC), Korea's top financial regulator, has vowed to monitor the growth of household loans and more actively manage the loans amid growing concerns that such debts are putting pressure on the country's economy.

He also cited short-term loans to finance construction projects, called project financing (PF) loans, as well as mounting debts held by small and medium-sized businesses as other top priorities he will address after being officially appointed to the position.

"Household loans have consistently increased. Concerns will arise over the further growth of such debts, if expectations toward a drop in interest rates and desire to purchase homes are on the rise," Kim said in his report submitted to the National Assembly, Tuesday, ahead of his confirmation hearing slated for Monday.

The comments came as household loans extended by banks in the country have risen for the third consecutive month in June, led by a rise in mortgage loans.

According to the data from the Bank of Korea (BOK), banks' outstanding household loans had come to 1,115.5 trillion won ($808 billion) as of the end of June, up 6 trillion won from a month earlier.

With regard to increasing risks stemming from rising delinquencies in the real estate PF sector, Kim called for more regulations on the ratio of the capital owned by the businesses, easing regulations on real estate investment trusts and more taxation support.

"The fundamental problems of the PF market lie in its funding structure characterized as low capital and high leverage, in addition to insufficient consideration of business feasibility by those in charge of financing," Kim said.

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"I plan to review the improvement of the relevant system, together with the Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport."

The risks on the PF sector have grown due to a slump in property markets and rising costs of construction materials as well as high interest rates.

According to the BOK data, the total value of outstanding PF loans stood at 134.2 trillion won at the end of March, with the delinquency ratio tallied at 3.55 percent, up 0.85 percentage point from three months earlier.

The nominee also highlighted that another key task will include ensuring the soundness of the secondary financial sector. Still, he noted that bank runs at such a sector would be unlikely, considering current conditions in the market and the liquidity of financial institutions.

He then expressed opposition to the idea that the FSC should take over management and supervision of MG Community Credit Cooperatives, which experienced massive capital outflow last year due to its escalating delinquency rates.

"Regarding the management and supervision of MG, it is time to focus more on keen cooperation with relevant institutions according to agreements that have been already signed," Kim said.