[2021 National Assembly Audit] "Loan-to-deposit ratio relaxation and others are factors in household debt increase"

Representative O Gi-hyeong "Financial Regulation Easing Measures Should Be Strengthened Again"

[Asia Economy Reporter Park Sun-mi] To address the issue of increasing household debt, it has been argued that the financial regulatory relaxation measures, such as the easing of banks' Liquidity Coverage Ratio (LCR) and Loan-to-Deposit Ratio (LDR) regulations, should be terminated.

On the 6th, Oh Ki-hyung, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea representing Dobong-eul, Seoul, pointed out that the financial regulatory relaxation measures have been one of the main factors behind the recent rise in household debt, and insisted that the easing of LCR and LDR regulations should be reinforced again.

Based on data from the Bank of Korea, Representative Oh revealed that corporate loans by commercial banks excluding policy banks amounted to 720 trillion won as of the end of June, which is only about 102 trillion won more compared to the end of 2019. During the same period, the increase in household loans was 137 trillion won, which is 35 trillion won more than the increase in corporate loans. Although the government's financial regulatory relaxation measures helped support companies struggling due to COVID-19, they have been analyzed as a major cause of the recent surge in household debt.

The Bank of Korea also analyzed in its Financial Stability Report released last month that financial institutions increased credit supply due to the easing of LDR and LCR regulations aimed at expanding banks' lending capacity, which weakened the household debt suppression effects of LTV and DTI.

Representative Oh stated, “It is not desirable to create an environment favorable for banks to increase household loans and then halt lending altogether citing excessive household loan growth,” and added, “Before taking extreme measures such as stopping bank loans, LCR and LDR regulations should first be normalized to reduce credit supply capacity.” He further noted, "Support for small and medium-sized enterprises and self-employed individuals struggling due to COVID-19 should be supplemented through fiscal spending and policy fund support."

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