[2020 National Audit] Non-Residential Mortgage Loans Exceeding 100% DSR Reach 3.2 Trillion Won

Min Hyung-bae, Member of the Democratic Party of Korea

[Asia Economy Reporter Kim Min-young] In the past year, new non-residential mortgage loans with a Debt Service Ratio (DSR) exceeding 100% have reached 3.2 trillion KRW.

According to data titled ‘Status of New Non-Residential Mortgage Loans by Domestic Banks from September 2019 to July 2020,’ submitted by the Financial Supervisory Service to Min Hyung-bae, a member of the National Assembly's Political Affairs Committee from the Democratic Party, over the 10 months from September last year to July this year, there were about 9,600 new non-residential mortgage loans with a DSR exceeding 100%, amounting to 3.1624 trillion KRW. During the same period, this accounted for 35.2% of the total new non-residential mortgage loans of approximately 9 trillion KRW. The weighted average DSR of all non-residential mortgage loans exceeded 100%, standing at 119.2%.

Looking specifically at commercial mortgage loans among non-residential mortgage loans, loans with a DSR exceeding 100% amounted to 1.1963 trillion KRW (3,100 cases), with nearly half of the loans (45%) being executed despite the principal and interest repayment amount exceeding the borrower's income. The overall weighted average DSR was 145%, higher than the weighted average DSR level of all non-residential mortgage loans.

DSR is an indicator that represents the borrower's principal and interest repayment burden relative to their repayment ability. It is calculated by dividing the annual principal and interest repayment amount of all loans held by the borrower by their annual income.

Currently, the Financial Supervisory Service assigns and manages average DSR targets by bank (40% for commercial banks, 80% for regional and specialized banks). When obtaining a loan secured by a house priced over 900 million KRW in speculative or overheated speculation areas, a DSR regulation of 40% applies.

The problem is that there are no separate regulations for non-residential mortgage loans. Min pointed out that as the government tightens regulations on mortgage loans for high-priced houses, asset owners are turning to loans secured by commercial buildings and land.

Min said, “As it becomes difficult to invest in housing by taking on excessive debt, people interested in real estate investment are flocking to non-residential investments where loan regulations are lax, which is problematic,” adding, “Financial authorities need to carefully diagnose whether a balloon effect is occurring where loans concentrate in regulatory blind spots, and must thoroughly supervise banks and borrowers to manage soundness.”

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