"Household Debt Growth Stabilizes... Financial Sector Urged to Avoid Size Competition"

Kim So-Young, Vice Chairman of the Financial Services Commission, Household Debt Review Meeting

Kim So-young, Vice Chairman of the Financial Services Commission, said on the 20th regarding household debt, "The financial sector should also consider the appropriate level of household debt from the perspective of sustainable growth and reflect it in their management policies," adding, "While refraining from unnecessary external competition for short-term profits, please pay attention to ensuring that the principle of lending within the repayment capacity is established at the frontline."

Vice Chairman Kim attended the 'Household Debt Risk Inspection Meeting' held together with related organizations such as the Ministry of Land, Infrastructure and Transport, the Bank of Korea, the Financial Supervisory Service, the Korea Housing Finance Corporation (HF), the Housing and Urban Guarantee Corporation (HUG), the Korea Federation of Banks, and the Korea Institute of Finance, stating, "For the smooth landing of household loans in the mid to long term, the government's efforts to improve the system and the financial sector's active interest and practice are most important."

The announced increase in household credit (Bank of Korea) for 2023 was 18.8 trillion won, a 1.0% increase compared to the previous year. The authorities consider this to be managed stably compared to previous years, given that the average increase in household credit over the past 10 years (2013?2022) was around 90 trillion won (average growth rate of 6.8%).

However, meeting participants agreed that systematic management is more necessary at this time, considering the continued expectations for interest rate cuts within the year and the possibility of a housing market recovery in the second half, which could accelerate the pace of household debt increase.

Accordingly, the authorities decided to continue close management through close communication with the financial sector to achieve the goal of managing the household debt growth rate within the nominal growth rate. Centered on the Financial Supervisory Service, they will monitor the loan trends by type and purpose of individual financial companies, and quickly discuss self-management plans for financial companies with excessive household loan growth.

In addition, regarding the supply of policy mortgages, the authorities plan to regularly operate the 'Housing Finance Council' to continue adjusting the pace. Vice Chairman Kim said, "Since both financial support for low-income and genuine demand groups and household debt management are important, we will strengthen cooperation to ensure that the supply pace of policy mortgages is appropriately managed."

Related institutional improvements, such as the introduction of the stress Debt Service Ratio (DSR), will also continue. To prevent excessive loans beyond repayment capacity, regulations related to stress DSR will be solidified, and the role of the Korea Housing Finance Corporation will be reorganized to activate the handling of private long-term mortgages.

Vice Chairman Kim stated, "For the smooth landing of household debt, in the short term, we will manage the increase in the total amount of household debt while minimizing inconvenience to low-income and genuine demand borrowers, and establish the principle of borrowing within repayment capacity across all household loans," adding, "Along with the government's institutional efforts, the financial sector's active interest and practice are important."