[2021 National Audit] Go Seung-beom "Household Loan Growth Rate May Reach High 7% This Year" (Comprehensive Report 2)

National Assembly Political Affairs Committee Comprehensive Financial Sector Audit

Financial Services Commission Chairman Ko Seung-beom is attending the National Assembly's inspection of the Financial Services Commission held by the National Assembly's Political Affairs Committee on the 21st, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Jin-ho Kim] Ko Seung-beom, Chairman of the Financial Services Commission, stated on the 21st, "The household loan growth rate this year could reach the high 7% range." This is interpreted as confirming that achieving the initially expected target of the 6% range is realistically difficult, considering the sharp increase in jeonse loans, which are excluded from the total volume management.

Chairman Ko made this remark during the National Assembly's Political Affairs Committee audit when asked by Yoo Dong-su, a member of the Democratic Party of Korea, whether managing the household loan growth rate target in the 6% range would be possible.

Ko explained, "Considering the demand for jeonse loans excluded from total volume management, the rate could go beyond the low 7% range to the high end. For a 6.9% increase, loans would need to increase by 10 trillion won over three months, but jeonse loans are increasing by 2.5 trillion won every month."

Regarding next year's total volume management plan, he said, "It will be determined considering factors such as economic growth rate," and added, "I think management should be strengthened further next year."

On the additional household debt measures to be announced next week, he emphasized that strengthening the 'repayment ability assessment' is key. Chairman Ko stated, "The speed of household debt increase is said to be second in the world after Hong Kong, but in fact, we are first, and since 2010, the housing price increase rate is also third, so management is necessary," adding, "We will gradually improve the system in these areas, and the most important thing is to strengthen the repayment ability assessment."

He further added, "The system to be announced next week will include advancing the implementation of the Debt Service Ratio (DSR) related to repayment ability assessment and strengthening the management of the secondary financial sector."

Accordingly, the additional household debt measures are expected to include the early introduction of DSR. Initially, the Financial Services Commission planned to introduce the borrower-level DSR 40% regulation in three phases. The DSR 40% regulation limits the repayment of loan principal and interest to within 40% of annual income.

The DSR regulation is currently preemptively applied to mortgage loans for houses exceeding 600 million won in regulated areas and credit loans exceeding 100 million won. The plan is to expand the target to total loan amounts exceeding 200 million won in July next year (phase 2) and 100 million won in July 2023 (phase 3), but advancing this schedule is under consideration. Additionally, to prevent a balloon effect in the secondary financial sector, it is expected that the DSR 40% will be uniformly applied to both primary and secondary financial sectors.

He clearly stated that DSR regulations will not be applied to jeonse loans to avoid harming actual users. Chairman Ko said, "After thorough review of measures for actual users, we concluded that protection for them is necessary," and added, "The additional household debt measures will not apply DSR regulations to jeonse loans."

However, he added, "We will carefully monitor and manage concerns that jeonse loans may induce gap investments."

Jeonse loans are currently in a blind spot of the DSR regulation. Although the recent surge in jeonse loans has been pointed out as another potential risk in household debt, the application of DSR regulations to jeonse loans was strongly considered but ultimately decided against. This is analyzed as a measure considering concerns that if jeonse loans were included in borrower-level DSR calculations, including principal, it would effectively block not only the relevant jeonse loans but also additional loans, causing harm to actual users.

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