Financial Authorities Announce October Provisional Figures + Unscheduled Inspection Meeting Held
Second-Tier Financial Sector Household Loan Balances Soar to Record Highs
Field Inspections at Saemaeul Geumgo and Nonghyup Central Association Amid Concerns Over Group Loans
Reviewing Inclusion of 41 Trillion KRW 'Auto Credit Card Installments' Within Management Scope
The financial authorities are accelerating their efforts to address the household debt issue, which has begun to spread to the secondary financial sector. With the goal of achieving meaningful changes within the year, the authorities are considering measures that include on-site inspections of Saemaeul Geumgo and NongHyup Central Association, which are at the center of group loan supply, as well as tackling the automobile credit card installment system.
According to the financial authorities on the 11th, the Financial Services Commission and the Financial Supervisory Service plan to hold an unscheduled household debt inspection meeting by gathering all financial sector stakeholders along with the announcement of the provisional household loan figures for October. Furthermore, on the 13th, a meeting will be held under the chairmanship of Kim So-young, Vice Chairman of the Financial Services Commission, to review current financial market issues and facilitate communication.
The financial authorities have been closely monitoring the 'balloon effect,' where loan demand spreads from banks, which have been consecutively reducing household loan issuance, to the secondary financial sector. Although the size of household loans in the secondary financial sector decreased by 500 billion KRW in September, it surged to around 2 trillion KRW last month, an all-time high, making more proactive intervention inevitable. Accordingly, the authorities plan to share key points regarding the October household loan statistics and discuss future response measures through the household debt inspection meeting.
In particular, the Financial Supervisory Service plans to conduct on-site inspections of Saemaeul Geumgo Central Association and NongHyup Central Association, which are at the core of group loan demand. This is because concerns over household loans, which are already soaring, could intensify once large-scale move-in complex balance loans, such as those in Olympic Park Foreon in Gangdong-gu, Seoul, become full-fledged.
In fact, half of the increase in household loans in the secondary financial sector in October was handled by Saemaeul Geumgo, accounting for 80% of the increased group loans. While NongHyup Central Association saw little change in the overall household loan size, the increase in mortgage loans reportedly accelerated. A financial authority official explained, "We plan to identify areas where household loans can be reduced through on-site inspections of Saemaeul Geumgo and NongHyup Central Association."
Additionally, measures to impose restrictions on the automobile credit card installment system, which had been outside the scope of household debt management, are also being considered. Automobile credit card installments are not included in the total debt service ratio (DSR) regulation. Typically, credit card companies have provided a special limit of up to 100 million KRW (with installments up to 60 months). If the special limit becomes more strictly linked to the buyer’s income, it is expected to become more difficult to borrow purchase funds exceeding annual income.
According to statistics from the Korea Federation of Credit Card Associations, out of last year’s domestic automobile sales of 78.5 trillion KRW, payments made by credit card amounted to 41.2 trillion KRW, exceeding half of the total. For domestic new cars, credit card payment amounts reached 40.3 trillion KRW. Consequently, some have pointed out that automobile credit card installment products are a blind spot in household debt management because they are not included in the DSR.
Min Byung-duk, a member of the Democratic Party of Korea, criticized during the October national audit, stating, "Credit card automobile installments are not recorded as loans, increasing the household debt burden." In response, the Financial Supervisory Service stated, "No decision has been made yet regarding reducing the special limit on credit cards."
Meanwhile, the financial authorities plan to scrutinize so-called 'recession-type loans' such as credit loans, cash services, card loans, and insurance policy loans more closely. This is because the size of 'recession-type loans' among the increased household loans in the secondary financial sector last month reached about 900 billion KRW. The authorities have set loan targets with credit card companies and capital companies by the end of the year.
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