[Reporter’s Notebook] DSR Regulation Excludes Jeonse Loans... Loopholes in Debt Management

Urgent Need for Practical Measures
to Protect Genuine Borrowers

[Asia Economy Reporter Park Sun-mi] Financial authorities will announce additional measures for household debt management on the 26th. The plan to apply the Debt Service Ratio (DSR) to jeonse (key money deposit) loans is not included. Instead, the direction of the measures has been set to advance the implementation timing of DSR by borrower earlier than scheduled and to strengthen household debt management in the secondary financial sector. The additional measures are also expected to include ways to strengthen the quality management of household debt and protect genuine borrowers.

The very fact that additional measures are being introduced is evidence that the existing plans have not been effective. On the 21st, Oh Ki-hyung, a member of the Democratic Party of Korea, sharply criticized during the National Assembly’s Finance and Economy Committee audit, saying, "When I think of the existing household debt measures, words like delay and confusion come to mind." The government and financial authorities, who had been preoccupied with increasing liquidity, belatedly tightened household loans, missing the optimal timing for household debt management. Moreover, their inconsistent and wavering stance in the process of announcing measures only fueled market confusion.

The problem is that it is uncertain how effective the soon-to-be-announced additional household debt measures will be.

With jeonse loans excluded from the DSR application in the new supplementary measures, it will be difficult to curb the rising trend of jeonse loans. As of the end of last month, the outstanding balance of jeonse loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was 121.4 trillion won, an increase of more than 15% compared to 105.2 trillion won at the end of last year. This is about three times the overall household loan growth rate of around 5%. Since jeonse loans are considered one of the main causes of the rapid increase in household loans and have played a role as a trigger for the real estate bubble linked to gap investment, excluding jeonse loans from regulation means that managing household loans itself becomes difficult.

There is also an opinion that continuing the total volume management policy while excluding jeonse loans from the household loan total limit is not very meaningful. The financial authorities initially set the household loan growth target at 5-6% per year, but as genuine borrowers’ complaints surged due to the banks’ consecutive tightening of loans, they hastily excluded jeonse loans from the household loan total limit. Considering the demand for jeonse loans excluded from total volume management, the household loan growth rate could reach the high 7% range this year.

Regarding criticisms that household debt management has not been properly carried out so far, Financial Services Commission Chairman Ko Seung-beom responded, "Loans to genuine borrowers have increased significantly, making household loan management difficult." Nevertheless, he said, "There is no change in the position that strong household debt management is necessary." Compared to the direction of the new supplementary measures, this is contradictory. What is urgently needed is practical measures for genuine borrowers, not inconsistent and wavering remarks.

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