Financial Authorities Launch 'Pinpoint Regulation' Amid Credit Loan Dilemma

FSS Orders Strict Compliance with Loan Regulations to 'Indirectly Block Mortgage Loans' at 5 Major Banks Meeting

[Asia Economy Reporter Kim Hyo-jin] Financial authorities have decided to focus on regulating the circumvention of credit loans due to housing mortgage loan regulations and have begun full-scale discussions with the banking sector. Amid the dilemma of difficulty in tightening all credit loans due to increased demand for living expenses caused by the aftermath of the novel coronavirus infection (COVID-19), they chose so-called 'targeted regulation.'

On the 14th, according to financial authorities and the financial sector, the Financial Supervisory Service (FSS) held a video conference this morning chaired by bank executives with vice presidents (group leaders in charge of loans) from the five major commercial banks: KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, to discuss measures related to the increase in credit loans.

At this meeting, the FSS checked the actual application of the Debt Service Ratio (DSR) regulation, which is the ratio of the annual principal and interest repayment amount of all household loans to annual income, and ordered the preparation of specific measures to apply stricter regulations in the future. The FSS also conveyed concerns and criticisms from the financial sector that competition among banks in lending is related to the rapid increase in credit loans.

Son Byung-doo, Vice Chairman of the Financial Services Commission, issued a 'warning' at the Financial Risk Response Team meeting on the 8th, saying, "We will also examine whether the recent increase in credit loans is due to competition in loan performance among banks."

Financial authorities judged, based on the FSS's recent analysis of funding plans for housing transactions in regulated areas, that a significant portion of credit loans is being used for housing transactions. They also see the continued 'young generation's all-in panic buying' phenomenon, where young people try to secure their own homes by supplementing insufficient housing funds mainly with credit loans, as house prices are still rising and jeonse (long-term deposit rental) prices are also increasing.

Accordingly, financial authorities plan to specifically consider expanding the scope of DSR regulation to include adjusted areas or lowering the DSR ratio to more strongly suppress the misuse of credit loans for real estate transactions.

Currently, for new mortgage loans on houses priced over 900 million KRW in speculative areas and speculative overheating districts, a DSR regulation of 40% (60% for non-bank sectors) is applied individually. When a borrower takes out additional credit loans after receiving a mortgage loan, the borrower-level DSR regulation also applies.

Some Caution on Suppressing 'Debt Investment'

However, financial authorities are somewhat cautious regarding the 'debt investment' craze, where people borrow money to invest in the stock market. A financial authority official said, "Under the current credit system, it is judged to be difficult for low-credit borrowers to take out loans beyond their capacity to invest in the stock market, etc."

The official also expressed the view that "Since the financial role for small business owners and SME managers who have been financially strained due to COVID-19 must be considered for a considerable period, it is not easy to indiscriminately pressure the entire credit loan market." Credit loans at the five major banks, which recorded the largest monthly increase of 124.2747 trillion KRW last month, have continued to surge, increasing by 1.1425 trillion KRW in just eight business days until the 10th of this month.

Meanwhile, regarding pressure to lower credit loan interest rates amid the debt investment craze, concerns have been raised that it could rather encourage 'debt investment.' A securities company official pointed out, "In a situation where financial authorities are generally suppressing loans, if securities companies lower credit loan interest rates, it looks like they are encouraging individuals to borrow more and invest." He warned, "If credit loan interest rates are hastily adjusted amid the investment boom, a balloon effect could occur where individual investors borrow funds even from savings banks or capital companies to invest."

This content was produced with the assistance of AI translation services.