[Q&A] FSC Chairman Kim: "Household Loans Increased in April Due to Eased Land Transaction Permit System... DSR Tightening to Proceed as Planned"

Kim Byunghwan, Chairman of the Financial Services Commission, Press Briefing
Household Loans Increased in April Due to Easing of Land Transaction Permit System
Third Phase of DSR to Proceed as Scheduled in July

Kim Byunghwan, Chairman of the Financial Services Commission, is speaking at the regular meeting with the financial 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, stated that household loans increased last month compared to the previous month, attributing this to the easing of real estate regulations such as the land transaction permit system. He added that, in order to address the household debt issue, the third phase of the stress-based Debt Service Ratio (DSR) system will be implemented as scheduled in July.

At a monthly press briefing held at the Government Seoul Office on the morning of May 7, Chairman Kim said, "In April, household loans increased more than in March. While the increase is not exceptionally high compared to the annual plan, it is still significant. Therefore, before the implementation of the third phase of the stress DSR, we will coordinate and manage so that the monthly management targets are not exceeded."

He emphasized, "Consistency in household loan policy is extremely important," and said that the details, including the interest rate level for the stress DSR, will be announced within this month.

The third phase of the stress DSR will be implemented with differentiation between the capital region and non-capital regions. Chairman Kim explained, "The intention to differentiate between the capital area and local areas is to adjust the speed of strengthening the regulations. There are differences in the real estate markets and economic conditions between the capital and non-capital regions, so we need to take these into account. However, this does not mean the regulations will be eased compared to the current level."

When asked whether his request for financial institutions to maintain interest rates to prevent an increase in loans led to higher interest income for banks, Chairman Kim firmly denied the claim, saying, "It is completely untrue that, in the process of curbing household loans, we told banks not to lower interest rates."

He continued, "Since the base rate is falling, it is natural for loan interest rates to also decline. That was my view at the beginning of the year, and in fact, loan rates, including for household loans, have been gradually decreasing since then. We will continue to monitor whether the pace of the decline in loan interest rates is appropriate."

The following is a Q&A with Chairman Kim.

-The Democratic Party is discussing transferring the Financial Services Commission's policy functions to the Ministry of Economy and Finance and establishing a Financial Supervisory Commission. In order to maintain the flexibility in operations you mentioned at the National Assembly, what direction do you think should be taken?

▲It is still unclear whether the reports currently circulating reflect the official position of the Democratic Party or are simply the opinions of presenters at a previous seminar. As the Financial Services Commission and its chairman are stakeholders, I do not think it is appropriate to comment at this time. Personally, since the foreign exchange crisis, we have continuously restructured the financial supervisory system, including the independence of the Bank of Korea. Each time we restructured, it was to address certain issues, but new shortcomings emerged, which led to further changes. I believe these ongoing discussions arise from remaining deficiencies. From this perspective, while organizational structure is important, I personally think it is more desirable to focus on fine-tuning how institutions operate together, rather than on structural changes alone.

-After the land transaction permit system was lifted in February, there were concerns that lending would increase, and there are now signals that this is accelerating from April. There is criticism that the financial authorities signaled to financial institutions to maintain interest rates to prevent loan growth, which has led to an increase in the interest margin and interest income for banks.

▲There have been some reports that the interest margin between deposit and loan rates is at its highest. I believe these reports are based on the standards disclosed by banks. Our assessment focuses on the actual loan interest rates. Even looking at the trends, the interest margin between new loans and deposits has widened slightly. However, the indicator that affects banks' profits is the interest margin based on outstanding balances, not new loans. The interest margin based on outstanding balances has been continuously declining. We are closely monitoring how the impact of new loans will affect the outstanding balances and will respond as necessary. Again, it is completely untrue that, in the process of controlling household loans, the government or supervisory authorities told banks not to lower interest rates.

-If the stress-based DSR regulation is implemented as scheduled in July, there are concerns that loans may be concentrated in the first half of the year. How do you plan to manage this?

▲When a stricter system is implemented, such effects can occur. We are managing household loans on a monthly and quarterly basis as one way to control them. That is why household loans increased more in April than in March, and this will be reflected in the statistics. However, while the increase is not exceptionally high compared to our annual targets, it is still significant. Therefore, in May and June, before the implementation of the third phase of the stress DSR, we will coordinate and manage to ensure that the monthly management targets are not exceeded for the next couple of months.

-There has been debate in political circles regarding the equity-based mortgage initiative, which the Financial Services Commission has promoted for the second half of the year. Do you expect it to proceed as planned?

▲The equity-based mortgage is a policy proposal I put forward as a way to ease the financial burden for those who have difficulty securing funds to purchase a home, especially as we need to manage household loans more tightly. When I first proposed it, there were concerns about whether it would be effective, given that similar past policies did not generate much demand. However, after the proposal was made, there have also been criticisms that if demand is too high, it could drive up housing prices. We will take these concerns fully into account in designing the policy. In terms of timing, it can only be implemented after June 3. I believe there are clear expectations for this measure, and since it is a pilot project, I expect it will be pursued in some form regardless of which government takes office. However, as to the specific structure of the pilot project, there are various opinions and concerns. Since a pilot project is also a way to test market conditions, we will consider all these factors and adjust the plan as needed after the new government is inaugurated.

-There have been reports that the establishment of a bridge insurance company is being considered as a solution for MG Insurance. Could you explain this?

▲We are reviewing several options regarding MG Insurance, and the establishment of a bridge insurance company is one of them. Since there could be various forms, we will announce the details once they are finalized. However, I want to emphasize that the focus will be on alleviating policyholders' concerns.

-There have been many political pledges regarding Bitcoin spot ETFs and virtual assets. What is the financial authorities' stance or direction? The Bank of Korea's recent report on the payment economy also raised concerns about potential infringement on monetary sovereignty by stablecoins. What is your position?

▲We have previously outlined our general approach to developing the regulatory framework for the virtual asset market. Although there are various pledges, they are largely aligned with our direction, with only minor differences in speed. When the next government takes office, we expect to coordinate our approach as they implement their pledges. Regarding stablecoins, we are aware that the Bank of Korea, as the monetary authority, has raised such concerns. How to institutionalize this and coordinate among agencies will likely be determined in the broader discussions after June.

-At the beginning of this year, banks' household loan targets were set based on nominal growth rates. With forecasts now predicting lower growth, will there be changes to these targets, and if so, how will you address potential confusion?

▲As of April, the pace of household loan growth is significantly below our annual target. Economic conditions could affect household loan demand, and the future of the real estate market also needs to be monitored. For now, we will continue to observe the trends before making any concrete adjustments, especially since all forecasts are lowering economic growth rates.

-There are suggestions that capital regulation easing should be slowed to ensure that financial resources flow into the real economy, and that banks should be encouraged to support corporate investment. Are there any plans to ease capital regulations?

▲Given issues such as tariffs, companies are expected to face some financial difficulties. Financial institutions need to play a role in this environment, and if supervisory regulations are an obstacle, we will review them. However, whether it is the risk-weighted asset (RWA) issue or other capital regulations, these are based on international standards. We cannot violate international rules, but within those frameworks, we are discussing with banks how to support corporate financing as much as possible. We will continue to discuss and flexibly respond where possible over the coming months.

-You mentioned that there will be regulatory differences between the capital region and non-capital regions in this month's household loan management plan. In the past, you have said that easing DSR regulations in non-capital regions is not appropriate for consistent household debt management, and research also suggests that easing DSR is not a solution for resolving unsold homes in local areas. What led you to consider easing DSR regulations for non-capital regions this time?

▲Whether it is a matter of interpretation or expression, I cannot agree with the characterization of this as "easing DSR regulations for non-capital regions." Earlier this year, there were calls to ease DSR regulations for local areas and unsold homes, which I understood as requests to relax current regulations. I stated that such an approach was inconsistent and inappropriate. This time, differentiating the third phase of the DSR between the capital and non-capital regions is about varying the speed of strengthening the regulations, not about easing them. There are differences in the real estate and economic conditions between the capital and non-capital regions, and these should be taken into account, but this does not mean the regulations will be relaxed compared to the current level.

-How do you assess the market situation following the full resumption of short selling?

▲Short selling has fully resumed, and we have also implemented various measures to advance the capital and foreign exchange markets. During my recent business trip to the United States, I requested that these efforts be fairly evaluated. While the inclusion in the MSCI Developed Markets Index will be quantitatively assessed by MSCI, the most important factor is the qualitative evaluation by investors. We need to wait and see how much investors feel the impact of our improvements, so for now, we must wait for the results.

-You mentioned that RWA-related regulations are global standards and difficult to change, but are you considering increasing government guarantees through institutions like the Korea Technology Finance Corporation or Korea Credit Guarantee Fund?

▲As I mentioned, we are looking for ways to address the RWA issue. For example, in the past, banks uniformly applied a 400% risk weight to corporate investments, but under the Bank for International Settlements (BIS) rules, if a public institution bears the risk, the weight can be reduced. We have implemented such measures, and will continue to look for room to make further adjustments within international rules. Separately, we have also increased guarantees through the Korea Credit Guarantee Fund, and will continue to do so as needed.

-You said you would differentiate the pace of regulatory strengthening for household loans between the capital and non-capital regions. Are you also discussing targeted easing of corporate loans for companies in non-capital regions with banks?

▲We will review whether to differentiate the pace of corporate lending between the capital and non-capital regions. Unlike household loans, for which we have set overall targets and DSR regulations in cooperation with banks, it is less clear whether such differentiation is possible for corporate loans. We need to further assess whether the difficulties faced by companies in different regions warrant such measures.

-The amendment to the Commercial Act was voted down in the National Assembly. What do you expect going forward?

▲Given the timing, the Commercial Act amendment was voted down in a re-vote, and there does not seem to be any active movement for further discussion in the National Assembly at this time. I expect full-scale discussions to resume after June. Regarding the Capital Markets Act, the relevant committee briefly discussed it, and if further meetings are held, we will actively participate to support the legislation. If additional improvements are needed for the proposals submitted by the government or the People Power Party, we will respond flexibly to support improvements in corporate governance.

-Are there any signs of abnormal activity in the financial sector related to the recent SK Telecom hacking incident?

▲As of now, we have received no reports of damage in the financial sector related to the SKT hacking incident.

-The equity-based mortgage involves the Korea Housing Finance Corporation investing in equity. Will the structure be designed so that the public institution bears losses first?

▲To make it an attractive product, having a public institution absorb some of the downside risk could help stimulate demand. However, as discussions progress, there are concerns about this approach. We will review all opinions to determine the best product design, including whether such a structure is necessary or if sufficient demand can be confirmed without it.

-There are concerns that the push for a fourth internet-only bank will lose momentum under the new government. Will the process proceed as planned?

▲I do not fully understand the basis for some media reports suggesting that the fourth internet-only bank will face setbacks under the new government. Opinions may differ on how much competition it will promote, but there is broad agreement on the need to foster competition, given public criticism of bank profits and concerns about monopolistic elements in the banking sector. The review process will proceed as planned, and based on past experience, preparations should be completed by around June. The new government will then review the results, but if the review is fair, I do not expect any reversal of the decision.

-There has been criticism that the Financial Services Commission exercised excessive discretion in approving a Woori Financial Group subsidiary last week, and that this could raise fairness issues for other financial holding companies in the future. What is your view?

▲Licensing is inherently discretionary, but the criteria must be transparent. If the question is whether the relevant provision was excessively interpreted to allow exceptional approval, I want to clarify that the decision was made through review and interpretation by the Financial Services Commission. The same interpretation will be consistently applied in the future, and we will maintain consistency in our approach.

-There has been criticism that you have been passive and failed to address issues arising from the strong and outspoken leadership of the Financial Supervisory Service Governor, especially regarding the Commercial Act amendment. What is your response?

▲Since taking office, I have found that the relationship between the Financial Services Commission and the Financial Supervisory Service at the organizational level has been very cooperative, with the Commission's leadership functioning well. At the level of the heads of the two organizations, there have been many things I could have said. However, given the interim leadership arrangements across various ministries and agencies, I felt it was not the right time for the financial authorities to intervene. If my actions were perceived as lacking leadership, I accept that as a shortcoming in my role as an organizational leader.