The Schedule for Applying DSR to Card Loans Will Be Significantly Advanced

Banking Sector Tightening Balloon Effect Blocked
"Self-Employed Needing Quick Cash May Be Pushed Outside Institutional Finance"

[Asia Economy Reporters Kim Jin-ho and Ki Ha-young] Financial authorities are considering the early implementation of the Debt Service Ratio (DSR) for card loans (long-term card loans), originally scheduled for July next year. This measure takes into account concerns that a so-called 'balloon effect' could occur due to comprehensive tightening on banks and savings banks.

According to financial authorities and the financial sector on the 25th, the Financial Services Commission is reviewing a plan to significantly advance the schedule for applying DSR amid growing concerns over the recent surge in card loans. Currently, the DSR limit per borrower is 40% for banks and 60% for non-bank financial institutions. Regulations on card loans have been exempted until July next year.

The financial authorities' focus on card loans is largely due to the sharp increase recently. Since the end of last year, loan regulations on banks have been significantly tightened, clearly causing a balloon effect toward the secondary financial sector. According to statistics from the Financial Supervisory Service, the card loan balance of seven major card companies?Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, and Hana?reached 33.1788 trillion KRW in the first quarter of this year, up 9.5% (2.874 trillion KRW) from 30.3047 trillion KRW a year earlier.

Go Seung-beom, the nominee for Financial Services Commission Chairman, has also expressed the need to advance the 'DSR regulation schedule.' On the 17th, Go said, "We will review whether the schedule to gradually expand the DSR regulation by July 2023 is appropriate and whether the loose DSR regulation level in the secondary financial sector could cause a balloon effect, and prepare supplementary measures." A financial sector official said, "It is highly likely that the strengthening of the card loan DSR will be discussed at the confirmation hearing on the 27th," adding, "After the hearing, the new chairman is expected to officially announce additional measures against the balloon effect, including card loans, as his first statement."

As financial authorities weigh the early implementation of DSR for card companies, the card industry is concerned that self-employed individuals urgently needing funds may be pushed out of the formal financial system. While they agree with the intent to mitigate risks from the rapid increase in household debt, they argue that regulations on general card loans, which are not for housing funds, should be approached cautiously.

Given that card loans are mainly used by middle- and low-credit borrowers, if regulations are tightened, card companies will have no choice but to lend primarily to high-credit borrowers with relatively higher disposable income for risk management purposes. However, among card loan users, 6 out of 10 are multiple debtors who have taken out three or more loans from financial companies, and most of these multiple debtors are small-scale self-employed individuals. An industry insider said, "Card loans are often used by customers who urgently need cash and repay it," expressing concern that "if loan regulations are tightened, card companies will inevitably reduce loans to small-scale self-employed and low-credit customers with low disposable income among existing card loan clients."

Another industry official said, "It appears that financial authorities are considering various household debt control measures, such as changing the DSR calculation method and imposing total household loan limits," adding, "If the per-borrower DSR is introduced within this year, it is expected to be tight to build a system linked with the entire financial sector."

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