[2022 Economic Policy] Managing Household Debt Growth Rate at 4-5%... 'Haetsalron' Loan Limit Raised to 5 Million Won

KRW 10 Trillion Scale 'Seomin Policy Finance' Supply
Worker's Hae-sal Loan and Hae-sal Loan Bank Loan Limit Increased by KRW 5 Million
Normalization of Corporate Credit Risk Assessment... "Supervision Also for Companies with Rapidly Increasing Investments Despite Sales Decline"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] It is expected to become even more difficult to obtain loans from banks next year. Financial authorities plan to stably manage the household debt growth rate at around 4-5% next year. Additionally, the borrower-level total debt service ratio (DSR) phases 2 and 3 will be implemented. To ease the interest burden on vulnerable groups, the loan limits for Worker’s 햇살론 and 햇살론뱅크 will be temporarily increased by 5 million KRW each.

The Ministry of Economy and Finance announced the '2022 Economic Policy Direction' on the 20th, outlining these measures.

Lee Eokwon, the first vice minister of the Ministry of Economy and Finance, stated at a briefing on the 17th, "Household debt will be stably managed at a growth rate of 4-5% through the implementation of borrower-level DSR phases 2 and 3 and encouraging repayment of existing loans," adding, "We will reduce the burden on low-income households caused by rising interest rates by supplying 10 trillion KRW in policy finance for the common people and temporarily raising the 햇살론 loan limits."

From next year, DSR phases 2 and 3 implemented... Household loans tightened further

With the implementation of DSR phase 2 in January next year, borrowers with total loans exceeding 200 million KRW will be unable to obtain loans if their annual principal and interest repayment amount exceeds 40% of their annual income (50% for secondary financial institutions). In July next year, the regulation will expand to borrowers with total loans exceeding 100 million KRW (phase 3).

DSR refers to the ratio of the annual principal and interest repayment amount of all household loans?including mortgage loans, credit loans, jeonse deposit loans, and securities-backed loans?to annual income. Since it measures repayment ability by aggregating all types of debt relative to annual income, it is considered a stronger regulatory tool.

To actively encourage repayment of existing loans, the prepayment penalty for policy mortgages will also be temporarily reduced. The 70% reduction period for prepayment penalties on the Bogeumjari Loan will be extended by six months until the end of June next year. The same applies to the Didimdol Loan. Additionally, voluntary participation by commercial banks in reducing fees will be encouraged.

The internal household loan management systems of financial companies will also be strengthened. Checks on violations of loan agreements currently in effect and compliance with suitability and appropriateness principles under the Financial Consumer Protection Act will be intensified.

햇살론뱅크 loan limit raised to 25 million KRW... Increasing use of interest rate reduction request rights

To minimize damage to vulnerable groups during the interest rate hike period, the 햇살론 loan limits will be temporarily increased next year. The loan limits for Worker’s 햇살론 and 햇살론뱅크 will be raised by 5 million KRW each to 20 million KRW and 25 million KRW, respectively.

Policy finance for low-income households will be expanded to over 10 trillion KRW, and mid-interest rate loans will be managed to be supplied at around 35 trillion KRW. However, separate quota allocation plans will be prepared to prevent shrinkage in supply scale during total volume management of mid- to low-credit loans and policy finance for low-income households.

Meanwhile, to enhance the utilization of the interest rate reduction request right, detailed guidance standards will be prepared, and various support measures such as standardization of application requirements and disclosure of performance will be implemented. The interest rate reduction request right allows borrowers to request a reduction in interest rates from financial companies when their credit improves due to increased assets or credit rating upgrades.

Furthermore, corporate credit risk assessments will be normalized. The main creditor bank will evaluate companies with credit exposure of 5 billion KRW or more and companies showing risk signs with credit exposure of 3 billion KRW or more. Additionally, companies with rapidly increasing investment expenditures despite declining sales will be considered as companies with rapidly increasing risk and evaluated accordingly.

A 'Corporate Structural Innovation Fund' of over 1 trillion KRW will be established to attract private capital into the restructuring market. The Korea Asset Management Corporation (KAMCO) support program, which assists difficult restructuring, business reorganization, and rehabilitation companies, will also be strengthened. The temporarily introduced corporate asset sale support program will be extended until next year. Financial support for rehabilitation companies with potential and willingness to restart, such as debtor-in-possession (DIP) financing, will be expanded from the initial 35 billion KRW to 50 billion KRW next year.