No Mention of 'Real Demanders' in Opening Remarks
"Strengthened Fund Screening Based on Expectation of Housing Price Increase"
Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), has called for the banking sector to autonomously manage the rapidly increasing household loans. This appears to be a response to recent controversies surrounding 'government-controlled finance.'
During a bankers' meeting held at the Bankers' Hall on the morning of the 10th, Governor Lee stated in his opening remarks, "Regulations on household loans by supervisory authorities are basically the minimum standards that must be complied with," and added, "I believe banks need to autonomously strengthen their risk management measures."
Previously, the banking sector responded to the financial authorities' orders to strengthen household debt management over the past few months by raising loan interest rates. However, as the increase in household debt did not ease despite the higher loan rates, Governor Lee said last month, "The authorities do not want loan interest rates to rise," prompting financial institutions to begin regulating loans themselves beyond just raising rates. Banks consecutively introduced measures such as suspending mortgage loans for one-homeowners, abolishing grace periods, and restricting conditional jeonse (long-term deposit lease) loans. When signs of a balloon effect appeared with loan demand shifting to secondary financial institutions, insurance companies like Samsung Life also blocked mortgage loans for homeowners.
However, as criticisms arose that innocent actual demand borrowers were suffering due to these policies, Governor Lee held an 'On-site Meeting with Household Loan Actual Demand Borrowers and Experts' on the 4th, drawing a clear line by stating, "The blocking of loans to homeowners by some financial companies was not in consensus with the authorities." On that day, as he repeatedly emphasized, "We will ensure there are no restrictions on loans for actual demand borrowers," Woori Bank activated a dedicated team for screening actual demand borrowers and introduced exceptions for actual demand borrowers in the rules prohibiting loans to homeowners, aligning with the governor's remarks.
In response, some voices in the banking sector called for the financial authorities to provide some guidelines to clarify the scope of actual demand borrowers, but on the 6th, Financial Services Commission Chairman Kim Byung-hwan put a brake on this by saying, "It is impossible to uniformly define which parts are actual demand borrowers and which are not," increasing the ambiguity.
A senior official at the FSS explained, "If the financial authorities were to decide who is eligible and who is not based on circumstances, it would cause backlash," adding, "The intention is that banks, which know their customers best, should handle this." This explanation suggests that it is difficult to define the scope of actual demand borrowers amid criticisms of 'government-controlled finance' as Governor Lee's remarks have shaken banks' loan policies. The term 'actual demand borrower' was not mentioned at all in this opening remark, while the words 'autonomy' and 'voluntary' were used five times.
Nevertheless, Governor Lee emphasized autonomous management by banks but also said, "We will strengthen screening for loans with high risk characteristics, such as funds based on expectations of rising housing prices." Distinguishing funds based on expectations of housing price increases is a complex process. Indicators that financial companies can objectively assess include DSR (Debt Service Ratio), which is the ratio of total debt principal and interest repayment to income, and LTV (Loan-to-Value ratio), which is the ratio of loan amount to housing value. Ultimately, this seems to convey the message that the borrower's loan repayment ability should be the standard.
Governor Lee continued, "The financial authorities will actively support the early establishment of such voluntary efforts by the banking sector, while closely coordinating with related ministries to establish management plans for policy loans, and will also closely monitor balloon effects in unsecured loans and secondary financial institution loans."
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