"DSR Expansion"... Loan Screening Becomes Stricter

Heads of Authorities Successively Hint at "DSR Expansion"

[Asia Economy Reporter Kim Hyo-jin] Observations are increasing that the expansion of the total debt service ratio (DSR) regulation to curb and manage the surging household loans is imminent. This follows related remarks by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, and successive indications of DSR expansion by the heads of financial and supervisory authorities. Measures such as lowering the current applicable ratio and expanding the scope of application are expected.

According to financial and political circles on the 14th, Yoon Seok-heon, Governor of the Financial Supervisory Service, said at the National Assembly's Political Affairs Committee audit the day before, regarding household debt issues, "I expect a clear picture regarding the expansion of DSR to emerge soon." This was in response to a remark by Oh Ki-hyung, a member of the Democratic Party of Korea, who pointed out that "the household loan regulation system should be changed to focus on actual repayment ability."

Financial Services Commission Chairman Eun Sung-soo also mentioned on the 12th at the Political Affairs Committee audit, "We are reviewing measures to expand the application of DSR regulations." Chairman Eun believes that since DSR regulation is a mechanism to borrow money within the scope of repayment ability, it is positive for the soundness of both borrowers and financial companies.

Earlier, on the 7th, Deputy Prime Minister Hong expressed at the National Assembly's Planning and Finance Committee audit that "there is a need to expand DSR to comprehensively control loans." As the heads of the economy and finance consecutively expressed such positions during the audits, the expansion of DSR regulation is seen as effectively formalized.

DSR is the ratio of the annual principal and interest repayment amount of all household loans to annual income, serving as an indicator to calculate the borrower's repayment burden. Currently, a DSR regulation of 40% (60% for non-bank sectors) is applied to new mortgage loans for houses priced over 900 million won in speculative and overheated speculation areas. The financial sector is discussing expanding the scope of DSR regulation to adjusted areas or lowering the ratio.

Discussion on Expanding Regulatory Scope

Since last month, financial authorities have been reviewing the possibility of expanding DSR regulations while discussing management plans for bank sectors and unsecured loans, examining the impact on total loan volume for each specific measure. A financial authority official explained, "Based on discussions with financial institutions, detailed coordination and review are underway." A representative from a commercial bank participating in the discussions said, "We are anticipating that the expansion plan will be finalized soon."

The banking sector recently submitted its own plan to the Financial Supervisory Service to manage overall household loans by limiting the monthly increase in unsecured loans to the 2 trillion won range until the end of this year. According to the 'Financial Market Trends in September' released by the Bank of Korea the day before, the outstanding household loans in the banking sector at the end of last month reached 957.8801 trillion won, an increase of 9.6242 trillion won compared to the previous month. This is the second-highest increase following the record-high increase of 11.7 trillion won in the previous month. Approximately 21.3 trillion won has increased over the two months since August.

The increase in household loans last month was largely influenced by mortgage loans rising by 6.7 trillion won compared to the previous month due to demand for funds related to housing sales and jeonse (long-term lease) deposits. Yoon Ok-ja, head of the Market General Team at the Bank of Korea, explained, "Housing sales transactions surged in June and July, and transactions are proceeding with a time lag," adding, "Due to the recent rise in jeonse prices in the metropolitan area, jeonse loan demand has also increased in August."

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