[10·26 Debt Measures] Experts Warn of "Surge in Artificial Demand... Possible 'Loan Cliff' for Ordinary People"

"'Let's Get It in Advance' Demand May Cause Last-Minute Loans and Balloon Effects"
"Tightening Card Loans May Push Financially Vulnerable Groups Further"

Bank Loan Counter Reference Image (Yonhap News)

[Asia Economy Reporters Kim Hyo-jin and Song Seung-seop] Experts have collectively raised concerns about a surge in 'last-minute loans' and the 'balloon effect' due to increased speculative demand following the government's household debt management plan announced on the 26th, which includes the early implementation of the Debt Service Ratio (DSR) and the strengthening of DSR regulations on secondary financial institutions. In particular, regarding the plan to tighten control over secondary financial institutions by including card loans in the DSR calculation, there are also criticisms that financially vulnerable groups such as low-income households could be pushed into a lending cliff.

Professor Lee Jeong-hee of the Department of Economics at Chung-Ang University said in a phone interview with this paper, "There is ample possibility that borrowers will rush to take last-minute loans due to the tightening of loan regulations," adding, "Even if their situation is not urgent right now, speculative demand may arise as people try to secure loans in advance just in case." Professor Lee also predicted that there could be a large surge in demand in areas not covered by the current regulations, such as jeonse loans.

Professor Lee further analyzed, "Since the path to secondary financial institutions has been left open despite much higher interest burdens for those in urgent need, an increase in loans in this sector may occur," and added, "Borrowers' cost burdens will increase, and secondary financial institutions will benefit indirectly." Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University also pointed out, "With the thought that loans might not be available next year, last-minute loans could rapidly increase during the roughly two-month grace period."

Regarding the inclusion of card loans, which are mainly used by low-income households, in the DSR target, Professor Lee said, "People who use card loans are those who urgently need cash. If they had financial leeway, why would they use card loans?" He advised, "As a result, there will be nowhere left to turn, so very detailed supplementary measures need to be introduced in the area of financial policies for low-income households."

Professor Yang Jun-mo of the Department of Economics at Yonsei University said, "Even if the loans are for vulnerable groups, if financial companies can bear the risk with their own capital, then the risk should be left to the financial companies, and only excessive risk-taking should be regulated," criticizing, "Nevertheless, the government is interfering in the business activities of financial companies and trying to block the total loan volume of financial consumers at a specific ratio without any clear basis."

"Uncertain Effectiveness of Card Loan Regulations and Other Measures in Suppressing Household Loans"

Professor Seo said, "In the case of card loans, there is a high demand from low-income people who urgently need cash to maintain their livelihoods," and added, "If card loans are blocked, does that mean policy funds will cover this part? If the private sector can cover it, that would be much more effective, but in the end, this is just tightening the noose." He further diagnosed, "Blocking card loans is unlikely to suppress household loans caused by the rapid rise in real estate prices, and therefore it does not align with the purpose of total volume regulation, which may only provoke complaints from genuine borrowers."

Regarding the decision to implement the measures starting next year rather than immediately, Professor Yang said, "If financial companies were given flexibility, such measures might not be necessary, but since the government directly sets limits, side effects are likely to occur, and thus a grace period was inevitable to prevent confusion," adding, "During the remaining two months, consumers will try to get loans as quickly as possible. This is how policies get tangled and tangled again."

Professor Seo said, "It would be less harmful and more natural to implement macroprudential policies to reduce household debt more strongly for about three months and then apply the total volume regulation next year. I don't understand why they say it is ineffective without trying such measures," and continued, "These buffer capital policies should be effectively implemented to naturally balance market demand and supply, but the government imposes uniform regulations without fully understanding the situation, causing many problems," criticizing, "Why introduce new regulations and set a grace period that triggers a surge in speculative demand?"

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