Financial Authorities to Implement Targeted DSR Regulations... Full Expansion Not Yet...

Eun Sung-soo and Yoon Seok-heon United in Calling for "DSR Expansion Review" at National Audit
Full Expansion Difficult Due to Prolonged COVID-19... Application of 'Pinpoint Regulation'
Consideration of Expanding Adjustment Areas and Lowering Market Price Standard to 600 Million Won

Financial Services Commission Chairman Eun Sung-soo is attending the National Assembly's Political Affairs Committee hearing on the 12th, responding to lawmakers' questions regarding the Financial Services Commission and others. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Kangwook Cho] Financial authorities are set to introduce a targeted strengthening of the Debt Service Ratio (DSR) regulations to manage household debt. This approach comes as a full-scale expansion of DSR is considered premature amid the prolonged COVID-19 pandemic.

According to financial circles on the 18th, the financial authorities are currently reviewing plans to expand the DSR. However, considering the side effects of a full-scale expansion, a targeted strengthening approach?such as expanding the areas subject to adjustment and lowering the market price threshold to 600 million KRW?is likely to be adopted.

At a recent National Assembly audit, Financial Services Commission Chairman Eun Sung-soo and Financial Supervisory Service Governor Yoon Seok-heon mentioned the 'DSR expansion,' drawing attention to the extent and method of the expansion.

Chairman Eun stated, "We are reviewing ways to expand the DSR to reduce household debt without harming ordinary citizens."

Governor Yoon also said, "We expect a clear plan for the DSR to be finalized soon."

Yoon Seok-heon, Governor of the Financial Supervisory Service, is attending the National Assembly's Political Affairs Committee hearing on the 13th and responding to lawmakers' questions regarding the Financial Supervisory Service./Photo by Yoon Dong-joo doso7@

The DSR is an indicator used during loan screening that calculates the borrower's total principal and interest repayment burden across all loans. It reflects the repayment burden of all financial sector loans, including mortgage loans, unsecured loans, and credit card loans.

Currently, a DSR regulation of 40% (60% for non-bank sectors) is applied individually to new mortgage loans secured by homes valued over 900 million KRW in speculative and overheated speculation zones. Even if the borrower takes out additional loans such as unsecured loans after obtaining a mortgage, the borrower-level DSR regulation applies.

Following the financial authorities' plan to strengthen regulations in a targeted manner, expanding the areas subject to regulation or lowering the threshold amount are being seriously considered.

One option is to apply the 40% DSR regulation to adjustment areas or to lower the market price threshold from 900 million KRW to 600 million KRW within speculative and overheated speculation zones, thereby increasing the number of regulated homes.

There is also talk of revising the limits on loans with high DSRs exceeding 70% and 90% (currently 15% and 10%, respectively).

Some argue for a full expansion of the 40% DSR, but the general consensus in the financial sector is that immediate adoption is difficult. There are concerns that tightening credit could adversely affect ordinary citizens and small business owners struggling due to COVID-19.

A financial sector official said, "If the DSR is tightened, people without income or those who find it difficult to prove income will be unable to get loans from banks and will be forced into second-tier financial institutions with higher interest rates. Since regulating loans affects low-credit borrowers, it is currently difficult to choose a full-scale expansion."