"Tightening Mortgage Loans Is Not Enough"…Financial Authorities Consider Regulating Personal Loans

"Monitoring the Balloon Effect of Card Loans Closely"

[Image source=Yonhap News]

Financial authorities are reportedly considering tightening regulations on unsecured loans in addition to existing restrictions on mortgage loans. Even with the implementation of the second-stage stress Debt Service Ratio (DSR) this month, they are closely monitoring whether the trend of "Yeongkkeul" (borrowing to the limit) continues amid rising real estate prices in the Seoul metropolitan area. Authorities are strongly considering measures to tighten unsecured loans following mortgage loans. They are also expanding their scope of inspection to detect any balloon effects of unsecured loans shifting to secondary financial sectors such as card loans.

According to financial sources on the 8th, financial authorities are observing whether demand for purchasing homes using both mortgage and unsecured loans is increasing. It is reported that they are reviewing additional measures, including reducing the unsecured loan limits at banks to within annual income levels.

In addition to implementing the second-stage stress DSR regulation in September, which further reduces household loan limits, and applying higher stress interest rates to mortgage loans in the Seoul metropolitan area to tighten loan limits, authorities plan to tighten unsecured loans as well if the increase in household loans does not ease.

The most discussed measure is applying the Loan to Income (LTI) ratio to unsecured loans, capping loan limits within annual income. Commercial banks currently set unsecured loan limits at about 150% of annual income, but this would be reduced to within 100%. Three years ago, when movements like Yeongkkeul (borrowing to the limit) and Debt Investment (borrowing to invest) surged, the government reduced unsecured loan limits to within annual income through administrative guidance. Recently, KB Kookmin Bank decided to limit unsecured loans to a maximum of annual income starting from the 9th, and Shinhan Bank followed suit from the 10th.

The Financial Supervisory Service (FSS) also plans to inspect whether balloon effects are occurring in secondary financial sectors. A financial authority official stated, "Starting next week, we will monitor daily whether there is a balloon effect toward savings banks' unsecured loans or card companies' card loans when unsecured loans at banks are restricted." The FSS has already been monitoring daily changes in mortgage loans and loan application numbers in mutual finance sectors, Saemaeul Geumgo, and the insurance industry since the beginning of this month as leading indicators.