Gradual Strengthening and Expansion of DSR Regulations by Week
Proposal to Tighten Securities Firms' Margin Loans Discussed
Careful Consideration of Measures Related to Jeonse Deposit Loan Regulations
[Asia Economy Reporter Kwangho Lee] Financial authorities are considering advancing the schedule for the phased implementation of borrower-level total debt service ratio (DSR) regulations and strengthening DSR regulations on secondary financial institutions as additional measures to manage household debt. Measures to tighten margin loans at securities firms are also being discussed.
According to the financial sector on the 24th, the financial authorities are expected to announce additional household debt management measures next month. The announcement is anticipated to come right after the National Assembly audit.
On the 10th, Financial Services Commission Chairman Seungbeom Ko told reporters, "We are meticulously analyzing 20 to 30 detailed items at the working level to prepare additional supplementary measures after Chuseok."
A financial authority official said, "We are currently reviewing about 10 measures," adding, "We will decide while observing the increase in household loans in September," but refrained from giving further details.
The most likely measure under consideration is the expansion and strengthening of DSR regulations. The DSR regulation limits the amount of mortgage and credit loans based on how much the borrower pays in principal and interest over a year relative to their annual income.
Previously, the financial authorities announced plans to expand borrower-level DSR regulations in three phases. Since July, a DSR of 40% has been applied when borrowing for houses priced over 600 million KRW in all regulated areas or taking credit loans exceeding 100 million KRW. From July next year, the regulation will apply to borrowers with total loans exceeding 200 million KRW across all financial sectors, and from July 2023, it will extend to borrowers with total loans exceeding 100 million KRW. Secondary financial institutions such as savings banks, credit card companies, and insurance companies will be subject to the 40% DSR regulation starting July next year.
Accordingly, a proposal has emerged to lower the borrower-level DSR applied to secondary financial institutions from 60% to the 40% level of primary financial institutions. This is interpreted as an effort to block the balloon effect where loan demand shifts from primary to secondary financial institutions and to curb the overall increase in household loans.
Secondary financial institutions are widely used by ordinary citizens such as small business owners and self-employed individuals, but the financial authorities believe they have no choice but to strengthen household loan regulations.
There is also a high possibility of imposing regulations on margin loans at securities firms. Margin loans are services where securities firms lend money using the investor's held stocks as collateral. The interest rate is around 5-7% annually, and if the stock price of the collateral falls below a certain level, the securities firm can conduct a forced sale (margin call).
The financial authorities are currently monitoring the rapid increase in margin loans at securities firms since last year. According to the Korea Financial Investment Association, as of this date, the scale of margin loans at securities firms has increased by more than 30% compared to the previous year.
However, it is expected to be difficult to intervene in Jeonse (key money deposit) loans as real demand borrowers could be adversely affected.
In September, the household loan balance of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 701.568 trillion KRW, an increase of 31.4141 trillion KRW compared to the previous month. Of this, 49.38% were Jeonse loans.
With the autumn moving season starting after Chuseok, tightening regulations on Jeonse loans could trigger a Jeonse crisis. Especially due to the impact of the three lease laws, Jeonse prices have surged, and this year's Jeonse shortage is expected to be more severe than ever.
A financial authority official dismissed concerns, saying, "No measures regarding Jeonse loan regulations have been finalized," and added, "We are considering various options."
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