One-Year Extension of 'Reverse Jeonse Refund Loan' Deregulation Measures... Financial Services Commission Holds Household Debt Review Meeting

Quarterly and Monthly Funding Demand Should Be Considered to Prevent Concentration of Household Loans Next Year
Financial Services Commission: "Loan Interest Rate Calculation System Will Be Reviewed If Necessary"

The Financial Services Commission has decided to extend the deregulation measures on reverse jeonse return loans, which were scheduled to end at the end of this month, for one more year until the end of next year. It also announced plans to check whether financial companies' interest rates faithfully reflect market interest rate trends.

On the 11th, the Financial Services Commission held a 'Household Debt Inspection Meeting' chaired by Secretary General Kwon Dae-young and decided to extend the deregulation measures on reverse jeonse return loans, which were set to expire on December 31, until December 31 of next year.

Secretary General Kwon explained, "There is a high possibility that the reverse jeonse situation will continue, especially in provincial areas and non-apartment housing," adding, "Considering ongoing concerns about tenants' housing stability, such as difficulties in returning jeonse deposits." Accordingly, landlords who need to return jeonse deposits will be subject to a total debt repayment ratio (DTI) of 60% instead of the debt service ratio (DSR) of 40%, on the condition of tenant protection measures.

The application period for the deregulation measures on reverse jeonse return loans applied to individual rental and sales business operators will also be extended until the end of next year. Rental and sales business operators facing reverse jeonse situations will be subject to a rental business interest repayment ratio (RTI) of 1.0 instead of 1.25 (1.50 in non-regulated areas) when taking out loans for the purpose of returning jeonse deposits, on the condition of tenant protection measures.

Last month, household loans across all financial sectors increased by 5.1 trillion won, showing a decrease in the growth rate compared to October (6.5 trillion won). However, participants in the meeting agreed that, considering the trend of interest rate cuts, it is necessary to closely monitor household debt trends for the time being.

The participants expected that household loans in the banking sector would be managed relatively stably until the end of the year, as banks are making efforts to comply with their annual household loan management targets. However, they emphasized the need to supply funds without concentration by considering quarterly and monthly demand next year, to avoid the concentration of household loans in specific periods as seen this year.

They also agreed to closely monitor the household loan situation in the secondary financial sector, which has recently been increasing. They stressed that the mutual finance sector should focus on cleaning up non-performing loans, strengthening loss absorption capacity, and expanding the supply of mid-interest loans for local low-income and vulnerable groups, rather than using the secured financial capacity from adjusting the timing of increasing the loan loss provision ratio for real estate and construction industries to supply household loans.

Meanwhile, Secretary General Kwon also announced plans to inspect the interest rate calculation systems of financial companies if necessary. He said, "Financial companies' interest rates fundamentally need to faithfully reflect market interest rate trends," adding, "Financial companies need to review their loan interest rate calculation systems, including additional interest rates, and make efforts to explain them to consumers. The financial authorities also plan to examine these systems if necessary."