Additional Household Debt Measures Scheduled for Announcement on 26th... 'DSR Strengthening' is Key

Prospects for Early Introduction of DSR and 40% DSR Application in Primary and Secondary Financial Sectors

[Image source=Yonhap News]

[Asia Economy Reporter Jin-ho Kim] Financial authorities are expected to announce additional measures on household debt on the 26th.

According to the financial sector on the 21st, the Financial Services Commission plans to announce additional measures on household debt next week after this week's National Assembly audit and inter-ministerial consultations. A financial authority official explained, "We are in the final stages of coordinating the detailed plans for household debt management, aiming for an announcement on the 26th."

The core of the additional measures is likely to be the assessment of repayment ability, as previously announced. Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki also stated at the National Assembly's Planning and Finance Committee audit held the day before, "The supplementary measures for household debt are currently in the final review stage," adding, "Overall, it will involve total volume management and strengthening of DSR regulations."

The early introduction of DSR is certain. Initially, the Financial Services Commission planned to introduce the borrower-specific DSR 40% regulation in three phases. The DSR 40% regulation limits the repayment amount of loan principal and interest to within 40% of annual income.

Currently, the DSR regulation is preemptively applied to mortgage loans for purchasing houses over 600 million KRW in regulated areas and to credit loans exceeding 100 million KRW. The plan is to expand the scope to total loan amounts exceeding 200 million KRW in July next year (phase 2) and 100 million KRW in July 2023 (phase 3), but there is consideration to advance this schedule. This is because household debt shows no signs of slowing down despite the application of phase 1 DSR. In fact, from July to September, after phase 1 DSR was applied, the increase in household loans at the five major commercial banks reached about 14 trillion KRW.

In particular, to prevent a balloon effect in the secondary financial sector, it is expected that the DSR 40% will be uniformly applied to both primary and secondary financial sectors.

However, to protect genuine borrowers, there is consideration not to apply DSR to jeonse loans. Since inter-ministerial consultations are currently underway, this matter has not yet been finalized.

Meanwhile, the Financial Services Commission, Financial Supervisory Service, Korea Federation of Banks, and commercial banks agreed at a task force (TF) meeting held the day before to ensure that there are no issues with balance payments loans for over 110 apartment projects. The purpose is to prevent cases where residents cannot move in due to failure to pay the balance caused by suspension of balance payment loans under total volume regulations.

The financial authorities plan to have banks with relatively more lending capacity transfer (loan funds) to banks with shortages to prevent problems in group loans.