Dokyu-sang "Thoroughly Managing Interest Rate Rise Risks... Strengthening Support for Vulnerable Sectors"

Dokyu-sang, Vice Chairman of the Financial Services Commission

[Asia Economy Reporter Kwangho Lee] Do Gyu-sang, Vice Chairman of the Financial Services Commission, said on the 2nd, "We will thoroughly manage the risk of interest rate hikes due to the global economic recovery and will not neglect support for vulnerable sectors."

Vice Chairman Do stated at the '40th Financial Risk Response Team Meeting' held via video conference on the same day, "At the June meeting of the U.S. Federal Reserve (FOMC), there was mention that discussions on tapering (reduction of asset purchases) had begun, and the Bank of Korea has continuously indicated the possibility of raising the base interest rate within this year."

Vice Chairman Do expressed concern, saying, "Unlike the stock market, which is supported by solid fundamentals such as real economic recovery and improved corporate earnings due to strong exports, the dominant view is that markets like cryptocurrency and real estate will be significantly affected as the global monetary tightening situation unfolds."

He added, "In fact, while the rapidly rising cryptocurrency market has recently shown a sharp decline, some cryptocurrencies have suddenly halted trading, showing very unstable behavior. In particular, in Korea, the rate of increase in housing prices relative to income is more than two to three times faster than in major countries."

Vice Chairman Do emphasized, "We must not ignore experts' warnings that the long-standing global monetary easing trend is changing, bringing 'dark clouds' to the real estate market. This is a time that requires heightened vigilance more than ever."

He continued, "The government will once again refine and steadily implement measures to reduce overall economic risks caused by excessive debt. The financial sector should also make efforts to establish lending practices based on repayment ability, taking the recent expansion of the Debt Service Ratio (DSR) applied on a borrower basis as an opportunity, and ensure flawless implementation to prevent confusion on the ground."

The government will gradually expand the scope of DSR application starting from the 1st. DSR refers to the ratio of total financial loan principal and interest repayments to income. In regulated areas such as Seoul, a DSR of 40% is applied when obtaining a mortgage loan for a house priced over 600 million KRW or a credit loan exceeding 100 million KRW.

In Seoul, virtually all apartments are subject to DSR regulations. As of February, 83.5% of apartments in Seoul exceeded 600 million KRW.

From July next year, borrowers with total loans exceeding 200 million KRW will also be subject to DSR regulations. In July 2023, DSR regulations will be fully applied to all borrowers with total loans of 100 million KRW or more.

Vice Chairman Do concluded, "The 'Financial Situation Monitoring Working Group' for diagnosing and responding to the COVID-19 crisis has reached a consensus that, barring unforeseen factors such as variant viruses, the recovery phase will fully commence in the second half of this year. However, although self-employed and small business owners are showing some recovery in sales, the prevailing view is that it will take more time to return to pre-COVID levels. Therefore, we will ensure selective support through the supply of management stabilization funds for small business owners, measures to alleviate the burden of credit rating downgrades, and support for small business damage through this supplementary budget."

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