Yoon Government Supports 4 Trillion Won in Win-Win Finance... "Plan to Prevent Recurrence of Real Estate PF Issues to Be Announced Within the Year"

Yoon Seok-yeol Government's Financial Sector Achievements and Plans Announced
'One-Stop Debt Refinancing' Moves 16 Trillion Won
Household Debt Ratio Falls for 3 Consecutive Years
About 1/4 of Youth Enroll in Youth Leap Account
Measures to Address Financial Consumer Damage Implemented

Yonhap News

The Financial Services Commission announced on the 10th that since the launch of the Yoon Suk-yeol administration, it has provided a total of 4 trillion KRW in support through win-win finance measures such as interest refunds for small business owners. Additionally, it plans to announce institutional improvement measures within the year in consultation with relevant ministries to prevent the recurrence of issues related to real estate project financing (PF).

Expansion of Financial Services for the Underprivileged and Household Debt Management: A "Two-Track Strategy"

According to the "Financial Sector Achievements and Future Plans of the Yoon Suk-yeol Government" announced by the FSC on the day, the banking sector voluntarily provided 2.1 trillion KRW in support through interest refunds for small business owners, and the government budget contributed 300 billion KRW. Additionally, financial sectors provided a total of 1.6 trillion KRW in further support through interest rate and fee reductions, debt relief, and other measures.

The FSC cited various policies implemented to reduce the burden on ordinary citizens in the high-interest era, highlighting the "one-stop loan refinancing service" introduced worldwide for the first time in May last year. Approximately 290,000 people moved loans totaling 160 trillion KRW through this service. As a result, the average loan interest rate dropped by 1.53 percentage points, saving 1.76 million KRW per person annually in interest.

In January this year, the service coverage was expanded from unsecured loans to include mortgage loans and jeonse (key money deposit) loans. It also included balance loans for pre-sale apartments (April) and collateral loans for officetels and villas (September). For jeonse loans, the loan transfer period was extended to up to six months before the lease expiration.

From January next year, the prepayment penalty system will be completely reformed. Banks will be required to reflect only the actual costs incurred from early repayment in the prepayment fees they charge. The FSC expects that the current annual prepayment fee burden of about 300 billion KRW will be reduced by nearly half to 150 billion KRW. Mortgage loan fees will decrease from the current 1.2?1.4% to 0.6?0.7%, and unsecured loan fees will drop from 0.6?0.8% to around 0.4%.

The FSC explained that household debt is also being managed stably. The household debt-to-GDP ratio has steadily declined from 98.7% in 2021 to 91.1% in the second quarter of this year. This marks the first time since 2004 that the ratio has fallen for three consecutive years. The expansion of borrower-level DSR (debt service ratio) and the introduction of stress DSR have helped establish credit screening practices based on repayment capacity.

Support for asset formation among young people has also yielded results. Approximately 1.53 million young people, about one in four eligible, have subscribed to the Youth Leap Account, with about 90% of subscribers maintaining regular contributions. The Youth Leap Account offers up to a 6% savings interest rate, government contributions, and tax-exempt benefits, enabling subscribers to accumulate up to around 50 million KRW over five years.

To promote the Youth Leap Account, the FSC plans to expand eligibility to include those on parental leave and military personnel, and to maintain all benefits even if accounts are terminated early due to marriage, childbirth, or first-time home purchase. Additionally, government contributions will increase from a maximum of 24,000 KRW to 33,000 KRW per month, and a Youth Financial Consulting Center will be established.

Preventing Recurrence of ELS and Electronic Finance Damages... Also Promoting Smooth Landing of Real Estate PF

Measures have also been taken regarding damages from incomplete sales of ELS (Equity-Linked Securities). After large losses occurred in H-index-based ELS, on-site and complaint investigations were conducted, and dispute resolution standards were established in March. As a result of voluntary compensation with consumers whose losses were confirmed at maturity, mainly by banks, the consent rate reached 85.7% as of the end of September, according to the FSC. The FSC plans to prepare institutional improvement measures to enhance the effectiveness of sales regulations, establish internal control systems, and improve banks' sales practices for financial investment products to prevent recurrence of incomplete sales of complex financial investment products.

Protection of electronic finance users has also been strengthened following the T-mep incident. With the enforcement of the amended Electronic Financial Transactions Act in September, the FSC reduced regulatory blind spots in prepaid services and enhanced user protection. Regulations that previously applied only when two or more industries could be purchased now apply even if only one industry is available. Prepaid funds must be managed separately in full. Additionally, full refunds are mandatory when usage conditions change, such as reduction of affiliated stores, and discount issuance is only allowed if financial soundness is ensured. Improvements to the PG (Payment Gateway) system are also underway. The recently proposed amendment to the Electronic Financial Transactions Act includes mandatory separate management of all settlement amounts and prohibits transfer or collateralization of separately managed assets.

Meanwhile, the FSC is promoting an orderly smooth landing of the real estate PF market. Following the Legoland incident, the PF smooth landing measures implemented have brought PF-ABCP issuance rates and spreads back to normal levels. The institutional improvement plan to be announced within the year will include strengthening the soundness of the development industry, encouraging increased equity ratios in PF projects, enhancing business feasibility assessments for PF loans, managing the soundness of market participants, and systematizing PF-related information management. The FSC is currently consulting with the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, and other relevant ministries for this purpose.

The FSC stated, "While continuously developing projects with excellent outcomes, we will also keep identifying and promoting additional necessary tasks in response to changing environments."