DSR Applied Even to High-Income Borrowers' Credit Loans Exceeding 100 Million Won

Banking Sector to Strengthen Voluntary Management

Reference image of bank loan counter

[Asia Economy Reporter Kim Hyo-jin] Financial authorities have decided to strengthen the repayment ability assessment for high-value credit loan borrowers in order to manage the rapidly rising household loans. Additionally, they plan to have each bank implement autonomous credit loan management measures and conduct monthly inspections of the implementation status.

The Financial Services Commission and the Financial Supervisory Service announced on the 13th the "Household Loan Management Plan including Credit Loans" containing these details.

The financial authorities intend to expand the application of the borrower-level total debt service ratio (DSR / 40% for banks, 60% for non-banks) to include high-value credit loans of high-income earners. Currently, such regulations apply when executing mortgage loans secured by houses priced over 900 million KRW in speculative areas and speculative overheating districts, but they plan to apply DSR regulations when the total credit loans of high-income earners with an annual income exceeding 80 million KRW exceed 100 million KRW.

Furthermore, the financial authorities plan to strengthen post-use management of high-value credit loans (cumulative amount exceeding 100 million KRW) to suppress asset market investment demand using excessive leverage. Accordingly, if the total credit loan amount exceeds 100 million KRW after the regulation is implemented and a house is purchased within one year (applicable to all regulated areas), the corresponding credit loan will be recalled.

These measures will be implemented from the end of this month after revising agreements and updating computer systems.

In addition, the financial authorities plan to have each bank establish and comply with its own credit loan handling management targets and conduct monthly inspections going forward. The goal is to manage credit loans at levels prior to the rapid increase.

At the same time, the financial authorities will conduct ongoing inspections to prevent excessive credit loans relative to income, such as credit loans exceeding twice the annual income.

Regarding this, Lee Se-hoon, Director of the Financial Policy Bureau at the Financial Services Commission, said, "Before the recent rapid increase in credit loans, the monthly increase in credit loans in the banking sector was around 2 trillion KRW," adding, "We will maintain this level of increase until the end of the year."

The banking sector's autonomous credit loan management strengthening measures will be implemented immediately.

Plan to Establish Advanced Debt Management Measures in Q1 Next Year

Meanwhile, the financial authorities plan to prepare an "Advanced Household Debt Management Plan" centered on strengthening DSR in the first quarter of next year to ensure loan screening is conducted based on repayment ability.

Through this, the financial authorities aim to gradually shift from the current financial institution-level DSR to borrower-level DSR and replace the total debt-to-income ratio (DTI) currently applied when handling mortgage loans with DSR.

They also plan to raise the current portfolio DSR regulation to the advanced country level of around 40%, considering the characteristics of each industry sector.

The financial authorities are also pursuing a plan to rationalize the current uniform DSR calculation method to better reflect the borrower's actual repayment ability. This includes additionally reflecting the expected future income of young people, considering the life-cycle income, and developing auxiliary indicators and alternatives to estimate the income of borrowers whose income is difficult to ascertain.

The financial authorities plan to form a task force within this month to prepare the advanced household debt management plan.

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