Bank Credit Loans Also Limited to Annual Salary... Maximum Reduction Expected to Be Half

Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kiho Sung] It is expected to become more difficult to obtain unsecured loans exceeding one's annual salary at banks in the future. This is because financial authorities recently urged commercial banks to lower the credit loan limits, which are currently at 120-200% of the annual salary, to the level of the annual salary. This measure appears to be aimed at curbing the rapidly increasing household debt despite strong management measures such as expanding the Debt Service Ratio (DSR) to individual borrowers.

According to the financial sector on the 16th, the Financial Supervisory Service held a meeting with banks on the 13th and requested cooperation to reduce the total amount of unsecured loans, including overdraft accounts, to below the annual income.

The reason financial authorities ordered a reduction in credit loan limits is due to the recent surge in loans. Since July, the authorities have been implementing borrower-level DSR. As a result, borrowers who purchase houses exceeding 600 million KRW in all regulated areas or who have unsecured loans exceeding 100 million KRW are subject to regulations that the proportion of loan principal and interest repayment to annual income must not exceed 40%. However, despite these strengthened regulations, household debt continues to rise. Financial authorities report that debt has increased mainly among borrowers who are not subject to DSR for loans under 100 million KRW.

However, the Financial Supervisory Service's loan limit guidelines are expected to apply only to new loan applicants. Banks have also expressed their intention to comply with government policies, so credit loan limits are likely to be reduced soon.

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