DSR Regulation... Are Borrowers Turning to High-Interest Card Loans?

Concerns Over Balloon Effect Due to Regulatory Exemption
Authorities Aim to Manage Household Debt at 5-6%
Industry: "No Rapid Increase Expected"

[Asia Economy Reporter Ki Ha-young] Card companies are expected to gain short-term windfall benefits from the borrower-specific Debt Service Ratio (DSR) regulation, which has been enforced since July. Due to the phased application, card loans (long-term card loans) are not included in this year's total loan volume regulation, allowing them to relatively enjoy a balloon effect. However, the industry believes that card loans will not increase sharply as financial authorities have stated they will manage household debt at around 5-6%.

According to financial authorities and the card industry on the 2nd, card loans, which are household credit loans for members, will be subject to DSR regulation starting from July next year. This year, non-member credit loans from card companies are subject to DSR regulation.

From this month, to prevent excessive borrowing, the application of a personal DSR of 40% has been expanded, applying a 40% personal DSR to mortgage loans exceeding 600 million KRW and credit loans exceeding 100 million KRW. Because of this, it is expected that demand for card loans, which are not included in the DSR, will increase if additional funds are needed.

The outstanding balance of card loans, which hit an all-time high last year, continued to increase in the first quarter of this year. According to the Financial Supervisory Service's Financial Statistics Information System, the outstanding balance of card loans from seven full-service card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) in the first quarter of this year was 33.1787 trillion KRW, an increase of about 9.5% (2.874 trillion KRW) compared to the same period last year (30.3047 trillion KRW). This is also a 3.5% (1.1323 trillion KRW) increase compared to the fourth quarter of last year (32.0464 trillion KRW). Card loan revenue also increased by 4.8% from 1.0202 trillion KRW in the first quarter of last year to 1.0695 trillion KRW in the first quarter of this year.

The card industry expects that while demand from customers needing additional funds may shift to secondary financial institutions such as card loans due to the strengthened DSR regulation, a rapid increase is unlikely. This is because card loans have higher interest rates than primary financial institutions, and financial authorities have announced that household debt will be managed at around 5-6% this year, making it difficult for card companies to indiscriminately expand card loans.

At the end of May, financial authorities reportedly collected this year's household loan targets from card companies. Although total volume management for card loans is also under consideration, specific timing or growth rates have not yet been decided.

A representative from Card Company A said, "Demand for card loans may increase due to the DSR regulation's windfall effect," but added, "Since the authorities announced that household debt will be managed at around 5-6% this year, it is difficult for card companies to expand card loans indefinitely."

A representative from Card Company B explained, "Since the DSR enforcement is still in its early stages, we are monitoring how the market will respond. From the 7th, the reduction of the legal maximum interest rate may reduce the profitability of card loans, so we plan to monitor the situation and adjust card loan demand accordingly."

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