Chairman Kim Byunghwan: "Phase 3 DSR to Proceed with Distinctions Between Non-Metropolitan and Metropolitan Areas"

Does not undermine consistency in household debt regulation
Only the pace of regulatory tightening differs
Household loans increased in April compared to previous month
Within the management target range
Reviewing measures in consideration of criticism of 'equity-type mortgage'
Conditional approval of Woori Financial Group M&A is at the discretion of the authorities

Embargo until May 7, 14:00 Kim Byunghwan, Chairman of the Financial Services Commission, is speaking at the regular meeting with the Financial Services Commission press corps held at the Government Seoul Office in Jongno-gu, Seoul on May 7, 2025. Photo by Jo Yongjun

Kim Byunghwan, Chairman of the Financial Services Commission, announced that the third-phase Stress Debt Service Ratio (DSR) system, scheduled to be implemented in July, will be carried out with distinctions between non-metropolitan and metropolitan areas.

On the morning of May 7, at the Government Seoul Office, Chairman Kim held a monthly press briefing and stated, "Consistency in household loan policy is extremely important," adding that the commission will coordinate the stress DSR interest rate levels and announce a plan in May.

Chairman Kim emphasized that 'easing DSR regulations in non-metropolitan areas' does not contradict policy consistency. He explained, "The intention of applying differentiated regulations between the metropolitan area and non-metropolitan regions is to adjust the pace of regulatory strengthening," and further stated, "There are differences in the real estate markets and economic sentiment between non-metropolitan and metropolitan areas at present, so these factors must be taken into account when strengthening DSR regulations."

April loan growth compared to previous month... "Within manageable range"

The Financial Services Commission expects that demand for loans may surge before the third-phase DSR is implemented in July. In fact, household loans in April are projected to increase significantly compared to the previous month. Accordingly, the commission reaffirmed its position to manage household loans on a monthly and quarterly basis.

Chairman Kim stated, "The level of increase does not deviate from the annual growth range set by the commission," but added, "We will ensure that loan growth stays within the monthly management target range in the one or two months leading up to the implementation of the third-phase DSR."

Previously, the commission announced that the annual household loan target would be managed within the range of the nominal growth rate (3.8%). There are also observations that the household loan target may be adjusted as the growth outlook for Korea this year has been revised downward.

Chairman Kim said, "Looking at the pace of increase up to April, it is considerably lower than the annual target," adding, "It is appropriate to monitor trends in the economy and real estate market over the next few months before making a judgment."

'Equity-type mortgage' a ladder of opportunity for those struggling to buy a home

Embargo until May 7, 14:00
Byunghwan Kim, Chairman of the Financial Services Commission, is speaking at the regular meeting with the Financial Services Commission press corps held at the Government Seoul Office in Jongno-gu, Seoul, on May 7, 2025. Photo by Yongjun Cho

Regarding the 'equity-type mortgage' policy, Chairman Kim stated, "From the perspective of financial authorities needing to manage household loans more tightly, this policy proposal is aimed at those who find it difficult to purchase a home due to funding constraints," and added, "There are criticisms that excessive policy demand could drive up housing prices, but we will fully consider this when devising measures."

An equity-type mortgage is a profit-sharing mortgage in which a public institution invests in a portion of the equity when purchasing a home. About half of the home price is provided as equity investment by public policy financial institutions such as the Korea Housing Finance Corporation, and the buyer must secure the remainder on their own. By taking out a loan for part of the amount the individual must provide, it is possible to purchase a home with less capital than before.

However, if the price of a home purchased with an equity-type mortgage rises, the profit is shared between the investor (the Korea Housing Finance Corporation) and the homeowner according to their respective equity shares. Conversely, if the home price falls, the Korea Housing Finance Corporation, as a subordinated investor, bears the loss. For this reason, there are criticisms that public funds are being used to shield individuals from real estate investment losses.

Chairman Kim said, "There are concerns about the specific structure of the pilot project, but at the same time, the pilot project serves to test market conditions," adding, "We will take all these factors into account and coordinate measures when the new administration takes office."

Promoting bank investment in companies... Considering regulatory easing within global rules

Chairman Kim also said that, given external factors such as reciprocal tariffs, banks should strengthen their role as providers of corporate funding. To this end, the Financial Services Commission is reviewing ways to ease capital regulations and risk-weighted asset (RWA) requirements for banks.

However, Chairman Kim explained, "We cannot violate international rules such as RWA and capital regulations," and added, "Within that framework, we are consulting with banks to find ways to help if there is any discretionary scope available to us."

As part of this, the commission is also considering increasing government guarantees through institutions such as the Korea Technology Finance Corporation or the Korea Credit Guarantee Fund. When public institutions bear the risk, the risk weight is lowered.

Approval for Woori Financial Group subsidiary acquisition... "Authorization is at the discretion of the financial authorities"

Chairman Kim responded to criticism that the Financial Services Commission may have exercised excessive discretion in approving Woori Financial Group's insurance company acquisition last week by stating, "The act of granting authorization itself is a matter of discretion."

He continued, "The criteria for authorization must be transparent," and added, "If asked whether it is acceptable to broadly interpret the regulations for exceptional approvals, the Financial Services Commission (agenda subcommittee) has reviewed and made a decision." He further stated, "Regarding the issue of fairness, this interpretation will be applied consistently in future approvals of subsidiary acquisitions."