[10·26 Debt Measures] Secondary Financial Institutions Avoid Same Regulations as Primary Banks... "Minimal Impact on Profits Expected"

On the 26th, Financial Authorities Announce 'Strengthened Household Debt Management Measures'

Financial Services Commission Chairman Ko Seung-beom is holding a briefing on measures to strengthen household debt management at the Government Seoul Office in Jongno-gu, Seoul, on the morning of the 26th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Song Seung-seop] The secondary financial sector is expressing surprise at the government's new household debt management measures. Although the total debt service ratio (DSR) indicator has been tightened, the sector avoided facing the same regulations as the primary financial sector as initially expected. While internal profit adjustments within the industry are inevitable, the general sentiment is that the impact will not be severe.

The strengthened household debt management plan announced by financial authorities on the 26th includes expanding borrower-specific DSR regulations to the secondary financial sector. Starting January next year, the individual DSR standard will be tightened from the current 60% to 50%. Initially, financial authorities were reportedly considering applying the same level of DSR regulation (40%) to the secondary financial sector as commercial banks to eliminate regulatory arbitrage.

A representative from a savings bank said, “Because the regulation was just announced today, we are currently reporting to executives, so it is difficult to comment,” but added, “We expected to be subject to a 40% DSR regulation, the same level as commercial banks, so this was unexpected.” They also predicted, “There will definitely be an impact on operations, but it does not seem to be as significant as expected.”

This is because the DSR regulates the limit per individual borrower, not the financial institutions themselves. Financial companies in the secondary financial sector will see individual limits reduced but can still engage in a volume-based business model by lending to a larger number of borrowers in the mid-interest loan segment. Due to factors such as COVID-19 and rising housing prices, loan demand remains substantial. Major large companies are subject to total household loan volume regulations, but the overall limits are still relatively generous.

There are also opinions that the business environment and profit outlook could change depending on how the total volume regulations will be adjusted when the regulations are fully implemented in January next year. Another savings bank official said, “The early implementation of DSR for household debt management is expected to create more difficulties in the business environment than anticipated,” but emphasized, “We will focus on mid-interest products targeting low- to medium-credit borrowers and the general public.”

However, from the perspective of financial consumers, the loan threshold will rise as limits for savings banks, mutual finance sectors, and capital companies decrease. Concerns have been raised that financially vulnerable groups such as low-income and low-credit individuals may not be able to borrow as much as they need. Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University warned, “Reducing the borrower-specific DSR to 50% has the effect of reducing loan demand,” but also cautioned, “High-income individuals borrow the 10% regulatory arbitrage from the secondary financial sector, while low-income individuals find it more difficult to obtain loans.”

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