DSR Applied to Credit Loans Exceeding 100 Million Won for High-Income Earners (Comprehensive)

Banking Sector to Strengthen Self-Regulation
"Protecting Ordinary Citizens and Real Demand Buyers to the Maximum"

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 to manage the rapidly rising household loans. Additionally, they plan to implement autonomous credit loan management measures for each bank 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, this regulation is applied per borrower when executing mortgage loans secured by houses priced over 900 million KRW in speculative areas and speculative overheating districts. The new plan is to apply DSR regulations when the total credit loan of a high-income borrower with an annual income exceeding 80 million KRW exceeds 100 million KRW.

DSR is an indicator that calculates the borrower's repayment burden by dividing the annual principal and interest repayment amount of all household loans by the annual income.

At the same time, financial authorities decided to lower the target levels for the proportion of high-DSR loans in the financial sector. The proportion of loans exceeding 70% and 90% DSR in the banking sector will be reduced from 15% and 10% to 5% and 3%, respectively. For regional banks and specialized banks, the proportions exceeding 70% and 90% will be adjusted downward to 15% and 10%, respectively.

Financial authorities also 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 exceeds 100 million KRW after the regulation is implemented and the borrower purchases a house (applicable to all regulated areas) within one year, 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.

Financial authorities also plan to require each bank to establish and comply with its own credit loan management targets and conduct monthly inspections going forward. The goal is to manage credit loans back to the levels before the rapid increase.

At the same time, 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 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. 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 Develop Advanced Debt Management Measures in Q1 Next Year

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

Through this, they aim to gradually transition from the current institution-level DSR to borrower-level DSR and replace the current total debt-to-income ratio (DTI) 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 financial sector.

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 future expected income of young people, considering the life-cycle income, and developing auxiliary indicators and alternatives to estimate income for borrowers whose income is difficult to verify.

A task force to prepare the advanced household debt management plan will be formed within this month.

However, financial authorities emphasize protecting low-income and genuine demand borrowers as much as possible. Regarding this, Do Gyu-sang, Vice Chairman of the Financial Services Commission, said at the financial risk response meeting on the same day, "We will continue to encourage the '175 trillion KRW + alpha (α)' scale livelihood finance stability package program and credit supply to low-income groups and genuine demand borrowers, and actively consider expanding policy finance supply if necessary."

Vice Chairman Do also stressed, "It is important that the supply of living funds to low-income people and small business owners does not shrink, and detailed operation is needed to ensure this."

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