Eun Seong-su and Yoon Seok-heon: "Bank Loans Used for Debt Investing and Yeongkkeul... Strengthening DSR Unavoidable"

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] Eun Sung-soo, Chairman of the Financial Services Commission, and Yoon Seok-heon, Governor of the Financial Supervisory Service, expressed serious concerns about the accelerating pace of household loan growth and stated that strengthening the Debt Service Ratio (DSR) is inevitable in the long term.

On the 17th, attending the plenary session of the National Assembly's Political Affairs Committee, Chairman Eun responded to questions from Democratic Party lawmakers Oh Ki-hyung and Yoo Dong-soo about how he perceives household loans exceeding 100% of the Gross Domestic Product (GDP), saying, "We are aware of the increase and are seriously concerned. The financial authorities repeatedly emphasize the stabilization of household debt for this reason."

Chairman Eun explained, "Yesterday, I met with the heads of the five major financial holding companies to discuss extending the loan maturity and interest repayment deferral measures for small and medium-sized enterprises and small business owners affected by the COVID-19 situation for another six months," adding, "While telling the financial holding company heads to release funds related to COVID-19, we are also ordering them to tighten household loans. It is truly a difficult task." He continued, "Household loans should be taken within the borrower’s capacity, and the DSR strengthening policy considers loans based on repayment ability. We plan to announce related details around late February to early March."

Governor Yoon Seok-heon of the Financial Supervisory Service also acknowledged the serious recognition of the increase in household loans, stating, "The COVID-19 situation is making the already difficult household debt problem even harder. Household debt is monitored daily and discussed weekly. We are monitoring it closely."

He said, "We are aware of concerns that loans are flowing into speculative funds," pointing out, "While a significant portion of second-tier financial institution loans go toward living expenses, a substantial part of bank credit loans is going into 'Yeongkkeul' (borrowing to the limit) and 'Bittou' (investment with borrowed money)." He added, "We are worried that the accumulation of household debt might further suppress consumption amid the COVID-19 situation. Considering this, we believe that strengthening DSR is appropriate for long-term household debt management. Furthermore, he emphasized, "DSR is based on repayment ability, which is income, but until now, we have relied too much on real estate assets. There is a need to break away from that, and strengthening DSR is essential for this change in direction."

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