Financial Services Commission to Promote Soft Landing of Household Debt... Aiming to Restore to 4-5% Range Within 3 Years

Establishment of a Continuous Monitoring System for Corporate Debt... Two-Track Support Provided

Eun Sung-soo, Chairman of the Financial Services Commission

[Asia Economy Reporter Kwangho Lee] The Financial Services Commission aims to reduce the scale of household debt growth while managing it at an appropriate level over the long term to achieve a soft landing. The goal is to restore the household credit growth rate to the 2019 level (4-5%) before the COVID-19 outbreak within the next 2-3 years and to respond flexibly.

For corporate debt, a permanent monitoring system will first be established to systematically analyze risk factors. For companies experiencing "temporary liquidity shortages" due to COVID-19, sufficient credit will be supplied through the "175 trillion won + α program" and additional measures. For companies facing "structural difficulties" amid environmental changes, a two-track support strategy will be pursued to encourage business restructuring support and proactive corporate restructuring.

On the 17th, the Financial Services Commission announced this year's work plan centered on these points during a briefing to the National Assembly's Political Affairs Committee. Financial Services Commission Chairman Eun Sung-soo stated in his greeting, "We will carefully manage household debt, which inevitably increased during the COVID-19 response process, so that it does not become a burden on our economy."

The Financial Services Commission plans to announce the "Household Debt Management Advancement Plan" next month, focusing on strengthening the Debt Service Ratio (DSR) for stable household debt management. However, the implementation timing will be differentiated by measure and promoted step-by-step and gradually.

Additionally, micro-level management considering the economic and socio-political aspects of household loans will be conducted simultaneously. The policy of sufficient credit supply to low-income earners and small business owners during the COVID-19 crisis recovery process is expected to be maintained. Accordingly, financial support for housing ladders targeting youth and the homeless will be strengthened through the introduction of long-term mortgages and expanded preferential conditions. This includes additional reflection of future income or allowance of extended maturities when handling mortgage loans for youth.

In particular, a permanent inspection system for corporate debt will be established, and two-track management by type will be implemented. A permanent monitoring system to advance corporate finance inspection will be built, and a systematic analysis system will be prepared to regularly analyze business conditions and risk factors by industry and company size regarding financial institutions' industry exposures.

A DB platform concentrating and managing data related to corporate business conditions and financial institutions' exposures will be established, and an industry-specific corporate finance stability index (tentative name) will be developed to check risk factors of corporate finance and corporate debt by industry and to induce appropriate exposure management.

The two-track strategy first supplies sufficient credit through the 175 trillion won + α program and additional measures to companies experiencing temporary liquidity shortages due to COVID-19. A new 1 trillion won scale program supports interest rate reductions on existing loans and new funds for companies struggling to repay principal and interest.

A new loan and investment program of 1 trillion won + α scale has also been established to support financial cost reductions, such as providing loans at cost-level interest rates during the initial phase of financial structure improvement and charging discounted interest rates in the initial years after business stabilization.

Next, for companies facing structural difficulties amid environmental changes, business restructuring support and proactive corporate restructuring will be encouraged. A total of 13 trillion won in business restructuring and facility investment funds will be supported through policy financial institutions within this year.

A facility sales support program for business restructuring approved companies will also be introduced. This program involves the Asset Management Corporation (KAMCO) first purchasing facilities that can be stored and traded by the Machinery Exchange, and it is scheduled for pilot operation this year.

In addition, the Corporate Structural Innovation Fund will be increased from 2.7 trillion won last year to 3.7 trillion won this year to enhance utilization. This includes inducing diversification of fund managers such as large and new GPs and operating debt investment funds with various loan interest rates and conditions.

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