National Assembly Legislative Research Office: "Distinguishing Actual Borrowers is Priority in Household Loan Regulations"

[Asia Economy Reporter Seong Gi-ho] Financial authorities are expected to continue strengthening household loan regulations, such as total loan volume controls, this year as well, but there are calls for prioritizing the distinction of genuine borrowers. This is due to concerns that prolonged COVID-19 and additional loan regulations could further worsen the economic situation of vulnerable groups.

According to political circles on the 6th, the National Assembly Legislative Research Office recently stated in its publication, ‘2022 National Assembly Legislative Research Office Issues of the Year,’ that "measures to protect genuine borrowers during household debt management are expected to be considered one of the important tasks."

The Legislative Research Office pointed out that as the government implements household debt management measures based on total volume regulation, loans are shrinking and lending rates in the financial sector are rising. It explained that concerns are being raised that the economic situation of vulnerable groups such as self-employed and small business owners, already weakened by COVID-19, could deteriorate further. Regarding this, it forecasted, "Issues such as the scope of loans subject to the Debt Service Ratio (DSR) regulation, exit strategies for vulnerable households, and measures through distinguishing genuine demand from speculative demand are expected to be discussed."

Along with this, it advised reviewing real estate policies to resolve household debt. The Legislative Research Office said, "The current rapid increase in household debt has been accelerated by increased loan accessibility due to liquidity supply after COVID-19 and households with stagnant real income actively using debt for asset investment," adding, "there is a need to implement real estate policies considering the expansion of housing finance, which accounts for a significant portion of household debt."

It continued, "The current expansion of housing finance is underpinned by socioeconomic factors such as increased real estate (housing) demand and rising real estate prices," and explained, "To manage household debt at an appropriate level, it is necessary to note that there are arguments for stable and reliable housing policies to be implemented alongside loan regulations."

It also pointed out that overall debt, including private and government debt, has increased since COVID-19, and preemptive discussions are needed regarding concerns that the financial soundness of banks and government fiscal health could be threatened starting from household debt.

Additionally, it emphasized the need to ▲conduct thorough analysis of the impact of interest rate hikes on debt growth and the real economy ▲consider additional domestic and international economic variables such as the presidential election and the U.S. Federal Reserve’s interest rate hikes.

The Legislative Research Office stated, "There are criticisms that the real income of low-income groups has stagnated since COVID-19 and the wealth gap based on asset ownership has widened," and added, "It is necessary to focus policy capabilities to ensure that household loan regulations secure the soundness of households and banks while not restricting opportunities for genuine borrowers to overcome economic difficulties."